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IV. TRADE POLICIES BY SECTOR 
(1) AGRICULTURE AND FISHERIES  
(i) General features 
1. Between 1998 and 2004, the crop and livestock sector  contributed on average 8.7 per cent of 
GDP, while fisheries accounted for 1.4 per cent.1  In value-added terms, the leading crop-growing 
categories were bananas, coffee and cocoa, followed by  other crops, flowers and cereals (Table IV.1).  
Fisheries account for roughly one fifth of the tota l value added by the agriculture sector, broadly 
defined, with forestry acc ounting for 11.5 per cent. 
Table IV.1 
Value added in the agriculture and fisheries sectors, 1998-2004 
(US$ million at 2000 prices and percentages) 
Activity  1998 1999 2000 2001 2002a 2003a 2004b Average 
Crop production, livestock, hunting and 
forestry 1,244 1,405 1,466 1,471 1,581 1,595 1,600 1,480 
Bananas, coffee and cocoa 26.6 31.5 30.2 27.5 29.8 29.7 29.1 29.2 
Cereal crops 10.7 9.2 9.3 10.2 9.9 9.3 9.3 9.7 
Flower growing 12.5 12.9 15.1 15.6 15.0 14.2 14.0 14.2 
Other crops 15.5 14.8 14.4 15.4 14.8 15.7 15.8 15.2 
Livestock breeding 22.9 20.5 19.0 19.6 19.2 19.9 20.4 20.2 
Forestry and wood extraction 11.8 11.1 12.0 11.8 11.3 11.3 11.5 11.5 
Fisheries 310 289 227 233 247 260 268 262 
Shrimp farming 50.7 43.6 29.7 30.5 31.3 27.7 30.5 34.8 
Fishing 49.3 56.4 70.3 69.5 68.7 72.3 69.5 65.2 
a Provisional figures. 
b Forecast. 
Source:  WTO Secretariat based on informati on from the Central Bank of Ecuador. 
 
2. Empirically, there is a close relationship be tween the type of farming operation and the 
predominant crop produced.  For example, the main  crops grown on subsiste nce farms are dry hard 
maize, soft maize (choclo),  yellow carrots, wheat and oranges.  In contrast, palmito, broccoli, papaya 
and mango are mostly produced by "business" or "technified" farms.2 
3.  By late 2004, agricultural production had largely recovered from the effects of the El Niño 
weather disturbance, which in 1998 had reduced th e output of bananas, coffee and cocoa by between 
30 and 60 per cent.  Since then, the performance of the agriculture sector has outstripped that of the 
economy as a whole, the fastest growing segments bei ng bananas, coffee and cocoa, and flowers.  In 
contrast, growth rates in the fisheries sector have trended downwards, largely because of diseases that ravaged shrimp production in 2000. 
4. Exports of agricultural and fishery products totalled US$2,798 million in  2003 with imports 
totalling around US$700 million.  The leading export  products include bananas, fresh flowers and 
buds, frozen prawns and shrimps, and fish preparati ons and preserves;  while exports of cocoa beans, 
and fruit and vegetable juices were also significant.   The main agricultural imports in 2003 include 
soybean oilcake, preparations for produci ng beverages, wheat, maize and soybean oil. 
                                                     
 
1 The data on the individual sector contributions to  GDP presented in this s ection are based on real 
GDP (at 2000 prices);  they differ from the proportions shown in Table I.1, which are based on GDP at current 
prices. 
2 COMEXI (2004). WT/TPR/S/148 Trade Policy Review 
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(ii) Crop and livestock sector 
(a) Legal framework and policy objectives 
5. The basic goal of agricultural policy is to "refocus the sector … towards a sustainable 
development model that guarantees competitiveness,  sovereignty and food security with national 
identity".3  Agricultural policies aim to "promote, de velop and protect" the farming sector through 
measures such as training and education for p easant farmers and agricultural entrepreneurs, 
implementation of credit insurance, organization of  a national marketing system, the right to land 
ownership and the right to buy a nd sell land without restriction, reduction of the risks of farming 
activities, investment incentives, protection for short-cycle crop farmers producing for domestic 
consumption, duty-free importation of agricultura l inputs, and the promotion of scientific and 
technological research.4  In the early 1990s, a number of government powers to intervene in 
agricultural markets through marketing orders and price fixing were suppressed.5 
6. The Ministry of Agriculture and Livestock (MAG)  is responsible for policy formulation in the 
crop and livestock sector,6 with various bodies implementing policy in their respective jurisdictions.  
For example, the National Water Council awards  water-use rights;  the National Agrarian 
Development Institute has the power to legalize a nd expropriate land under the Agrarian Development 
Law;  and the Ecuadorian Agricultural Health Se rvice manages animal and plant health services 
(Chapter III (1)(xi)).  Agricultural policies and regu lations are also formulated within the Andean 
Community framework. 
7. The key laws governing agricultural activities are the Agrarian Development Law, which is of 
general scope, and several others that regulate specific activities, including the Water Law,7 the Law 
to Promote and Control the Production and Marketing of Bananas,8 the Special Law on the Coffee 
Sector,9 the Law on the Formulation, Manufacture, Importation, Marketing and Use of Pesticides and 
Related Products for Agricultural Purposes,10 the Law on Plant Health,11 and the Law on Animal 
Health.12  The sector is also governed by the agri cultural regulations of the Andean Community, 
including Decision 515 establishing the Community's  legal framework for the adoption of sanitary 
and phytosanitary measures applied to regi onal trade and trade with non-member countries.13 
(b) Measures at the border 
8. The agriculture and fisheries sectors enjoy tariff protection at levels that are clearly above the 
general average (Chapter III (1)(iv)). 
9. Imports of several agricultural products are covered by the Andean price band system, 
adopted in Decision 371 of the Commission of the Cartagena Agreement.14  This aims to "stabilize the 
                                                      
3 Data from the Ministry of Agricultu re and Livestock available online at:  
http://www.mag.gov.ec/docs/elagro60.htm. 
4 Agrarian Development Law, Article 3,  Official Journal 55, 30 April 1997. 
5 Pérez (undated), p. 10. 
6 Agrarian Development Law, Article 25. 
7 Supreme Decree No. 369, Offici al Journal  69, 20 May 1972. 
8 Official Journal 124, 6 August 1997. 
9 Official Journal 657, 20 March 1995. 
10 Official Journal 442, 22 May 1990. 
11 Official Journal 475, 18 January 1974. 
12 Official Journal 409, 31 March 1981. 
13 Andean Community Decision 515 of 8 March 2002. 
14 Andean Community Decision 371 of 26 November 1994. Ecuador WT/TPR/S/148 
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import cost of a special group of agricultural products the international prices of which are subject to 
marked instability or major distortions."15  In 2004, 155 ten-digit tariff lines in the Harmonized 
System were covered by the Andean price band sy stem, corresponding to the following HS sections 
(the number of 10-digit tariff lines subject to the Andean price band system is indicated in 
parentheses):  live animals and animal products (48);  vegetable products (31);  fats and oils (36);  
prepared foods (35) and chemical products (5).  Th e list of products subject to the Andean price band 
system can only be altered by decision of the Commission of the Andean Community. 
10. Tariff duties in the Andean price band system are based on the position of the observed price 
of each product in an international reference market , with respect to a band defined by "floor" and 
"ceiling" prices set on the basis of historical values.  The reference markets are defined in Annex 1 to 
Andean Community Decision 371.  If the international reference market price is  below the floor price, 
the common external tariff is applied plus a surcha rge.  If the reference price on the international 
market is above the ceiling price, the common exte rnal tariff is applied with a discount.  If the 
reference price is between the ceiling and floor pri ces, the common external tariff rate is applied. 
11. Every fortnight the General Secretariat of the Andean Community defines 13 reference prices, 
one for each "marker" product – rice, barley, yellow maize, white maize, soybeans, wheat, crude 
soybean oil, crude palm oil, unrefined sugar, wh ite sugar, milk, pig meat and chicken cuts.  The 
reference prices are obtained from the average pric es observed over the previous fortnight in an 
international reference market for each marker product,  converted to c.i.f. values.  Floor prices of the 
band are calculated as the average prices observed in  the different reference markets over the last 
60 months (converted to c.i.f. prices in constant dollars, using the United St ates urban consumer price 
index), adjusted by a percentage corresponding to the standard deviation during the period.  Ceiling 
prices are obtained by adding one standard variation to the floor price.  The floor and ceiling prices 
remain in force for one year.  Formulas for cal culating tariff duties and all operational aspects are 
defined in Andean Community Decision 371.16 
12. Products subject to the Andean price band system  that are not markers are known as "linked" 
products.  These are substitutes or processed versions  of the marker products.  Tariffs applied to 
linked products are based on the rate applied to  the corresponding marker product, and the difference 
between the common external tariff rate a pplied to the marker and linked products. 
13. The value used to calculate tariffs on marker pr oducts is the c.i.f. reference price defined by 
the General Secretariat of the Andean Community.17  The tariff duty levied on imports arriving in 
Ecuador between the 1st and 15th of each month is calculated from the average price observed in the 
reference market during the first half of the previ ous month.  The General Secretariat publishes this 
price in a resolution at the end of the corresponding fortnight.  The tariff on imports arriving in Ecuador as from 16th of each month is based on the reference price in the second half of the 
preceding month. 
14. According to Decision 430 of the Co mmission of the Andean Community,
18 tariff duties 
resulting from application of the Andean price ba nd system may not exceed the bound rates in the 
WTO.  The minimum tariff rate a pplicable to a product covered by the Andean price band system is 
zero, even if the tariff duty calculated by the formulas contained in Decision 371 produces a negative result – for example following a significant rise in the reference price. 
                                                     
 
15 Andean Community Decision 371, Article 1. 
16 See Chapters V and VI of A ndean Community Decision 371. 
17 Andean Decision 371, Article 9. 
18 Andean Community Decision 430 of 27 February 1998. WT/TPR/S/148 Trade Policy Review 
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15. Ecuador is entitled to operate tariff quotas fo r the products mentioned in section I-B of 
Schedule CXXXIII, in the framework of the co mmitment on minimum access opportunities contained 
in the WTO Agreement on Agriculture.19  It has submitted several notifications to the WTO relating 
to its tariff quotas for 1996-2000.20 
16. The right to operate tariff quotas covers 17 fou r-, six- or eight-digit lines at final bound rates 
of between 19 and 45 per cent for in-quota imports  and of between 36 and 85.5 per cent for out-of-
quota imports.  The products affected are turkeys, chicken cuts, wheat, barley, maize, sorghum, malt, 
starch, soybean oilcake, rapeseed oilcake, milk powder and glucose.  The final quota quantities have 
been in force since 2001 and represent an average increase of roughly 20 per cent on the initial quota 
(Table IV.2).  All products for which tariff quotas can be operated are covere d by the Andean price 
band system. 
Table IV.2 
Products subject to tariff quotas 
 Quota (tonnes)  Bound tariff (%) 
Description of product (tariff headinga) Initial Final In- quota Out-of-quotab 
Whole turkeys, fresh or chilled (02072200) 200 250b 25 45 
Chicken cuts and offal, frozen (02074100) 2,000 2,500b 30b 85.5 
Milk in powder under codes 04021000, 04022100 and 
04022900  900 1,250C 45 72 
Glucose (17023090) 1,500 1,500 35 45 
Glucose with fructose (17024010) 200 200 35 45 
Glucose syrup (17024020) 100 100 35 45 
Flint maize - other (10059000) 16,000 19,678b 25 45 
Grain sorghum - other (10070090) 10,000 12,3000b 25 45 
Maize starch (11081200) 114 137b 30 40 
Soybean oilcake (23040000) 17,000 17,000 25 38.7 
Rapeseed oilcake (23064000) 6,000 6,000 25 38.7 
Wheat (all lines unless for animal consumption) 
(10010000) 390,000 480,000b 19 36 
Barley - other except seeds (10030090) and unroasted 
malt (11071000) 13,000 16,000b 25d 36 
Wheat starch (11081100) 100 120b 25 36 
a The tariff headings follow HS 92, the classificati on used in Ecuador's schedules of concessions. 
b From 2001. 
c From 2000. 
d In the case of unroasted malt, an in-quota tariff rate of 20 per cent is applied to the first 1,000 tonnes, and a 25 per cent  rate is 
levied on remaining in-quota amounts. 
Source:   WTO Secretariat, on the basis of data containe d in WTO documents G/AG/N/ECU/9, 20 December 2000;  
G/AG/N/ECU/13, 11 January 2001;  and WT/L/77/Add.1, 20 July 1995. 
17. Since being admitted to the WTO in 1996, Ec uador has maintained tariff quotas for the 
products listed in its schedule of concessions.  R esponsibility for operating these quotas rests with a 
Tariff Quota Committee comprised of officials fro m the MAG, the Ministry of Foreign Trade, 
Industrialization, Fisheries and Competitiveness (MICIP), and the Ministry of the Economy and Finance.
21 
18. Interministerial Agreement No. 100 explains the operation of tariff quotas in the following 
way.  If the tariff rate applied to a product within the Andean price band system is below the in-quota 
bound rate, imports are subject to the tariff rates es tablished within the Andean price band system, and 
                                                      
19 WTO document WT/L/77/Add.1, 20 July 1995. 
20 WTO documents G/AG/N/ECU/1, 3 July 1997;  G/AG/N/ECU/5, 17 June 1998;  G/AG/N/ECU/8, 
20 December 2000;  G/AG/N/ECU/9 , 20 December 2000;  and G/ AG/N/ECU/13, 11 January 2001. 
21 Interministerial Agreement No. 100, Official Journal 88, 31 May 2000. Ecuador WT/TPR/S/148 
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no quantitative limit is applicable.  In the context of this Review, the authoriti es stated that in such 
cases they had notified the WTO that the volume of in-quota imports was zero.  The authorities also 
explained that if the tariff rate applied to a produc t in the Andean price band system was above the in-
quota bound rate, then the respective tariff quota came into play, and the in-quota bound rate was 
applied to the import volume indicated in Ecuador's  schedule of concessions.  Imports over and above 
the quota are subject to the tariff rate applicable to the product in question in the framework of the 
Andean price band system, but may not exceed the ou t-of-quota bound rate established in Ecuador's 
schedule of concessions in the WTO. 
19. The legislation does not specify criteria for a ssigning quotas.  According to the authorities, 
these are generally allocated to importers on the basis of their historical consumption, pursuant to an 
interministerial agreement based on a reco mmendation from the Tariff Quota Committee.  
Interministerial Agreement No. 100 establishes that in-quota imports should be made during a certain 
period of the year, known as the "quota period"22, which, according to the authorities, makes it 
possible to avoid imports occurring at the time of the national harvest. 
20. Tariff quotas can be applied in conjunction with a national output absorption requirement.  In 
such cases, only importers that have purchased a portion of national output gain authorization to 
import the product under the tariff quota. 
21. The mechanisms and conditions used for na tional output absorption are established in 
Interministerial Agreement No. 067 of 10 March 1978.  Apparently, su ch requirements can be applied 
to any "sensitive" product, not just those for whic h tariff quotas are operating in the WTO framework.  
In December 2004, the MAG published a decision making imports of maize, soybeans and soybean 
oilcake subject to the national production absorption requirement23;  and it would appear that rice 
imports are also covered. 
22. Absorption requirements are managed through the National Agricultural Product Exchange 
Corporation ( Corporación Bolsa Nacional de Productos Agropecuarios ), a private non-profit 
institution that exists to "regulate and prom ote the marketing of … agricultural products".24  T h e  
framework of absorption requirements for the prod uction of maize, soybean and soybean oilcake, 
requires importers to be registered with the Cor poration, for which purpose they need to submit a 
copy of the invoice showing the volumes and price of  national output acquired.  The Corporation then 
issues a certificate of registration which the importe r can present to the MAG for authorization of 
imports "in the amount and at the time it deems convenient".25  Ministry of Agriculture Agreement 
No. 254 also appoints the Corporation as the institu tion responsible for recording imports and exports 
of rice and its by-products, and purchases by local  industries "of products and by-products benefiting 
from international support, and operations involving absorption of local purchases."26 
23. Roughly 750 ten-digit tariff lines corresponding to agricultural products (animals and animal 
products, vegetable products, animal or vegetable fats and oils, and foodstuffs), are subject to import 
licences under COMEXI Resolution 183 (Chapter III (1)(vii)).  Imports of these products must also 
obtain a health permit or a sanitary certificate. 
                                                      
22 Interministerial Agreement No. 100, Article 2. 
23 Ministry of Agriculture and Livestock Agreement No. 347 of 14 December 2004. 
24 Executive Decree No. 1425, Official Journal 347, 3 January 1986. 
25 Ministry of Agriculture and Livestock Agreement No. 347. 
26 Ministry of Agriculture and Livestock Agreement No. 254, Official Journal 408, 10 September 2001. WT/TPR/S/148 Trade Policy Review 
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24. Farmers may import inputs, seeds, animals, plan ts, machinery and equipment free of customs 
and other import duties.27 
(c) Other measures 
25. In a series of notifications relating to commitm ents on agricultural export subsidies, Ecuador 
indicated that it had granted no subsidies in the period 1996-2000.28  It also stated that in 1996-2000 
its "policy of not providing dom estic support" remained unchanged.29 
26. There are no recent estimates of the scale of tran sfers resulting from agricultural policies.  In a 
study conducted in 2000, the Secretariat of the Andean Community estimated that between 1995 and 
1998 the average annual producer subsidy equiva lent amounted to roughly US$312 million, 
representing about 30 per cent of output value for a group of agricultural products (cotton, rice, sugar, 
cocoa, coffee, milk, yellow maize, white mai ze, African palm, sorghum, soybeans and wheat).30  The 
corresponding transfers were made through tax exemptions, price-support measures and public 
expenditure.  The main beneficiary product was mi lk, with sugar and rice following far behind.  An 
earlier 1996 study had revealed the existence of si gnificant transfers from the agriculture sector, 
mainly export products, to the rest of the economy during the period 1986-1993.31 
27. The results of the National Agricultural Census  show that of 850,000 units engaging wholly 
or partly in agricultural production, only 7.3 per cent obtained credit between October 1999 and 
September 2000.32  The main sources of financing were "lenders" or prestamistas , who provided one 
quarter of all agricultural credits, followed by cooperatives and the National Development 
Bank (BNF), each of which accounted for around 16 per cent of the total.  Other funding sources were 
as follows (each source's share of total credit in pa rentheses):  family relatives (9.5 per cent), private 
banks (9.1 per cent), processing firms or input supplie rs (6.6 per cent), intermediaries (6.5 per cent), 
foundations or non-governmental orga nizations (5.9 per cent) and ot hers.  Between January 2000 and 
May 2004, the BNF extended credits averaging US $48.3 million per year for activities relating to 
agricultural crops, grazing and livestoc k, and agricultural machinery. 
28. The Law Reforming the Law to Promote a nd Control the Production and Marketing of 
Bananas empowers the MAG and the MICIP to fix minimum prices for banana sales to exporters.  
Under this legislation, the MAG must organize negotiations between exporters and producers every 
three months.  If these do not produce a consensus price, the Ministers heading the MAG and the 
MICIP are to set prices "on the basis of the average cost of national production".33  According to this 
law, a minimum price for bananas needs to be set because "sales depend on a small group of 
exporting firms".34  The declared value of bananas exported cannot be less than the established 
minimum price.  Minimum reference prices are also  defined for cocoa, coff ee, shrimp and fishery 
                                                      
27 Agrarian Development Law, Article 16. 
28 WTO documents G/AG/N/ECU/3, 4 July 1997;  G/AG/N/ECU/7, 29 April 19 99;  G/AG/N/ECU/12, 
8 December 2000;  and G/AG/N/ECU/16, 11 January 2001. 
29 WTO documents G/AG/N/ECU/4, 16 June 1 998;  G/AG/N/ECU/11, 8 December 2000;  and 
G/AG/N/ECU/15, 11 January 2001. 
30 General Secretariat of the Andean Community (2000), p. 21. 
31 Valdés (1996), p. 17. 
32 The results of the National Agricultural Census can be consulted online at:  
http://www.sica.gov.ec/censo/. 
33 Law Reforming the Law to Promote and Control the Production and Marketing of Bananas, 
Article 1. 
34 According to the second paragraph of the Law to Promote and Control the Production and Marketing 
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products, and the declared export values of these produc ts may also not be less than the set minimum 
reference prices. 
29. The Autonomous National Institute of Agri cultural Research (INIAP), a public body, 
undertakes research aimed at increasing the competitiveness of the agriculture sector.  It also provides 
various technical services to the sector, including  the sale and processing of seeds, soil analysis, 
sanitary and phytosanitary analysis, agrochemical  product efficiency tests, training courses in 
agrotechnology, and analysis of nutrients in food concentrates and pastures. 
30. The MAG's Agricultural Services Modernization Programme (PROMSA) aims to increase the 
productivity of the agriculture sector through research a nd the transfer of technology.  Two thirds of 
PROMSA funding comes from regional and multilate ral bodies;  its components include a fund to 
finance research carried out by national institutes,  either independently or in collaboration with 
foreign research institutes; and the creation of  a market for agricultural extension services.35 
(iii) Fisheries sector 
31. The key legislation governing fishery activ ities is the Law on Fishing and Fisheries 
Development.36  Fisheries policy is designed by the National Fisheries Development Council 
comprised of the Under-Secretary for Fishery R esources, the Ministers for Foreign Affairs and 
Agriculture and Livestock, the Se cretary-General for Planning of the National Development Council, 
the Director-General of the Merchant Marine, and a representative from the private fishing business.  
Ecuador's fisheries policy is intended to promote su stainable management of fishery resources and the 
corresponding ecosystems. 
32. In principle, the Law on Fishing and Fisheries Development allows foreign investment in the 
aquaculture and fisheries sectors, including in the processing and marketing of fishery products.37  
Nonetheless, it authorizes foreign investment in  new fishery activities only where this includes 
processing in industrial plants located in Ecuador.38  Local fishermen have exclusive rights over 
small-scale fishing activities39, which the law defines as those "undertaken by fishermen either on an 
independent basis or organized in cooperatives or associations, who gain their habitual livelihood 
from fishing, or use it for the purposes of domest ic consumption, employing small-scale manual 
techniques and small boats".  Fishing boats flying a foreign flag are authorized to enter, but not 
shrimp or lobster boats or factory ships.40 
33. The National Fisheries Institute, created in 1960,  undertakes research to diversify fisheries 
production, stimulate its development and achieve ra tional use of fishery resources.  It is also 
responsible for issuing health certificates fo r exports of fishery and aquaculture products. 
(2) MINING , EXCLUDING HYDROCARBONS  
34. The mining sector (which includes the exploitation of mines and quarries, and the 
manufacture of non-metallic mineral products, base metals and processed products) represented 
roughly 1.2 per cent of GDP in 2003.  The sector's contribution has remained relatively constant in 
real terms since 1999.  In 2003, gold production amounted to 4.8 tonnes;  limestone production 
                                                      
35 Central Bank of Ecuador (2002b), p. 18. 
36 Supreme Decree No. 178, Official Journal 497, 19 February 1974. 
37 Law on Fishing and Fisheries Development, Article 19A. 
38 Law on Fishing and Fisheries Development, Article 19A. 
39 Law on Fishing and Fisheries Development, Article 23. 
40 Law on Fishing and Fisheries Development, Article 37. WT/TPR/S/148 Trade Policy Review 
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totalled 4,688 tonnes;  and produc tion of construction materials 3.3 million cubic metres.  Ecuador 
also produced kaolin, feldspar, marble, clay, silica, pumice stone, zeolite, gypsum, pozzolan and 
barite.  Exploitation of carbon dioxide gas has also begun recently. 
35. Mining policy is formulated in the Office of th e Under-Secretary for Mines of the Ministry of 
Energy and Mines, while the Ministry's National Mining Directorate is responsible for administering 
mining rights, including maintenance of the National Mining Cadastre.  The sector is governed by the 
Mining Law41 and a variety of regulations.42  The field of application of these provisions does not 
cover hydrocarbons or radioactive minerals. 
36. Article 247 of the Constitution stipulates that mineral resources are the inalienable and 
imprescriptible property of the State.  Nonethel ess, the latter may authorize domestic or foreign 
private enterprises to carry out mining activities.43  The Mining Law guarantees the principle of 
national treatment for foreign investors44, although foreign firms must maintain registered offices in 
Ecuador to engage in mining operations. 
37. Various reforms to the Mining Law were a dopted in 2000 in order to promote mining 
activities.  Mining concessions are granted through a single mining title that guarantees the possibility 
of prospecting, exploration, exploitation, extracti on, smelting, refining and marketing for all mineral 
substances that may be found in the concession area .  Mining concessions may last up to 30 years, 
renewable for equal periods.  The pr ovisions of the Mining Law that used to restrict the awarding of 
concessions to private investors in "special mining zones", "mining reserve areas" and "restricted zones" have now been abolished.   Roughly 2,600 mining concessions were in force in early 2005. 
38. The Mining Law does not provide for the paym ent of royalties, but concession-holders are 
subject to annual fees for the corresponding conser vation and production permits.  The fee for the 
conservation permit is based on the size of the area under concession and the time for which the 
concession is maintained, according to a scale estab lished in the Mining Law.  The production permit 
is equivalent to US$16 per hectare devoted to commercial production.  In 2004, the proceeds of 
conservation and production permits , administrative process fees and other State services amounted to 
roughly US$1.5 million.  The Mining Law specifies deductions to which agents in the mining sector 
are entitled for income tax purposes.
45 
39. Individuals or corporations engaged in the mark eting or export of meta llic mineral substances, 
or who export non-metallic mineral substances, and do not hold a mining concession must obtain a 
licence from the Regional Mining Directorates.46 
40. According to the National Mining Plan prepared by the Ministry of Energy and Mines, one of 
the problems with the legal framework governing the mining sector lies in the conflicts of jurisdiction 
stemming from the diversity of standards used to  regulate mining activities" and "cases of discretion 
in application of the mining … regulations due to a failure to apply the regulations governing 
                                                      
41 Law No. 126, Official Journal/Suppl. 695, 31 May 1991. 
42 General Regulations Replacing the General Regulations of the Mining Law (Executive Decree 
No. 1415, Official Journal 307, 17 April 2001);  E nvironmental Regulations for Mining Activities (Executive 
Decree No. 625, Official Journal 151, 12 September 1997);  and Mining Safety and Hygiene Regulations 
(Executive Decree No. 3934, Official Journal 999, 30 July 1996). 
43 Mining Law, Article 5. 
44 Mining Law, Article 13. 
45 Mining Law, Articles 153-159. 
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administrative procedures in general".47  To address this problem, the National Mining Plan envisages 
institutional strengthening for mining supervisory bodi es, activities to disseminate regulations relating 
to the mining sector, and training programmes for of ficials involved in national and regional mining 
administration. 
(3) HYDROCARBONS  
(i) General features 
41. The economy of Ecuador is high ly dependent on oil production.  In 2003, crude oil and 
hydrocarbon products accounted for roughly 10 per cen t of GDP, 43 per cent of exports and just under 
one quarter of the State's fiscal revenue. 
42. Outstanding hydrocarbon reserves are estimated  at roughly 4,838 billio n barrels, and are 
among the four largest in Latin America.  Betw een 1994 and 2003, total crude oil production rose 
from 138 million to 154 million barrels per annum.  Production by PETROECUADOR dropped from 
117 million to 70.5 million barrels during the same period, and its share of total production shrank 
from 90 to just under 50 per cent.  Output by pr ivate firms between 1994 a nd 2003 grew by slightly 
more than 300 per cent.  Between 1998 and 2003, Ec uador exported on average roughly 60 per cent of 
its total crude oil production (Table IV.3).  Average production of refined products was around 
50 million barrels, surpassing domestic demand in every year except 2003. 
Table IV.3 
Oil indicators, 1998-2003 
(Million barrels)  
  1998 1999 2000 2001 2002 2003 
Crude oil       
Production 137 136 146 147 143 154 
 PETROECUADOR (% of total) 73 65 58 56 56 49 
 Private companies (% of total) 27 35 42 44 44 51 
Exports 85 84 87 89 84 92 
Refined products       
Production 52 46 55 53 52 50 
Imports 15 13 9 13 15 17 
Domestic demand 49 44 47 50 53 53 
Exports 13 14 16 14 13 12 
Source:  National Hydrocarbons Directorate, 2004. 
43. The authorities indicated that the drop in production by PETROECUADOR was partly due to 
the fact that it handed over several of its oilfie lds to be operated by private firms.  Moreover, 
promulgation of the Public Sector Budget Law48 meant that PETROECUADOR was no longer 
allocated resources from the Oil Investments Budget F und, thereby reducing its capacity to invest in 
new projects. 
44. Proven natural gas reserves, at 135,000 million c ubic feet, are relatively small and have not 
been developed, except as part of electricity generation projects. 
45. Since November 2003, private firms have also been participating in the transportation of 
crude oil through the Heavy Crude Oil Pipeline (O CP), operated by OCP Ecuador, S.A., a company 
set up by a consortium of foreign firms.  Previously, private firms used the Trans Ecuadorian Oil 
                                                      
47 Ministry of Energy and Mines (2003). 
48 Law No. 18, Official Journal 76/Suppl., 30 November 1992. WT/TPR/S/148 Trade Policy Review 
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Pipeline System (SOTE), owned by PETROECUADOR.  The OCP enables private firms to transport 
heavier crude oil without having to dilute it, as w as necessary with the SOTE.  The transport capacity 
of the OCP is 450,000 barrels per day, compared to the SOTE's 390,000 barrels. 
46. Through PETROECUADOR, the State owns Ecua dor's three refineries (Esmeraldas, 
Amazonas and La Libertad), with joint cap acity totalling 176,000 barrels per day.  
PETROECUADOR also has a gas plant with capacity to process 25 million cubic feet per day of rich gas and 150 gallons per minute of liquids, and to recover 505 tonnes per day of liquid petroleum gas 
(LPG). 
47. Although there are no legal restrictions on privat e participation in the hydrocarbons refining 
and marketing segments, the private-sector share of  investment in these areas seems to be small.
49 
48. Between 1998 and 2002, the average price of 92-octane gasoline was US$0.28 per litre.50  A 
study conducted in late 2002 shows that the prices of gasoline, diesel and fuel oil did not diverge 
significantly from their respective opportunity cost in the international market51, whereas the 
wholesale price of LPG was only a fraction of the equivalent opportunity cost.  The same study also showed that the net effect of Ecuador's fuel pr icing and taxation policy re presented an annual subsidy 
amounting to roughly US$300 million. 
(ii) Institutional and legal framework 
49. The Ministry of Energy and Mines, acting th rough the Under-Secretariat for Hydrocarbons, is 
responsible for the formulation of hydrocarbons polic y, promulgated by the President of the Republic 
through Executive Decree No. 2176 of 13 Octobe r 2004, except for aspects concerning national 
security, which are within the jurisdiction of th e Ministry of National Defence.  The National 
Hydrocarbons Directorate of the Ministry of Energy and Mines is responsible for ensuring compliance with regulations governing the sector. 
50. The Ministry of Energy and Mines has established the following goals in the hydrocarbons 
subsector:  to increase oil production and incorporate new hydrocarbon reserves;  to supply domestically produced fuels to the domestic market and reduce LPG imports;  to achieve structural 
modernization of the subsector;  to increase fiscal  revenues from the subsector;  and to increase 
participation by domestic industry in the subsector's activities. 
51. The main legal provisions relating to the hy drocarbons subsector are the Hydrocarbons Law
52 
and its enabling regulations, and the Special  Law on the Ecuadorian State Oil Company 
(PETROECUADOR) and its subsidiary firms, t ogether with the corresponding regulations. 
52. Ecuador's Political Constitution and the Hydr ocarbons Law establish that hydrocarbons 
deposits "… form part of the unalienable a nd imprescriptible patrimony of the State".53  The State 
channels its exploration and exploitation of hydrocarbon deposits directly through 
PETROECUADOR, which in turn under takes such activities itself or through contracts with domestic 
or foreign firms.54  To enter into a contract with the State,  foreign firms must have registered offices 
                                                      
49 Mayorga (2003). 
50 IMF (2003b), p. 81. 
51 Mayorga (2003). 
52 Supreme Decree No. 2967, Offi cial Journal 711, 15 November 1978, and its reforms. 
53 Political Constitution of the Republic of Ecuado r, 1998, Article 247;  and Hydrocarbons Law, 
Article 1. 
54 The various types of contract are quoted in Article 2 of the Hydrocarbons Law. Ecuador WT/TPR/S/148 
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in Ecuador.55  In early 2005, the State had 21 contracts signed with private enterprises.  
PETROECUADOR can also engage in exploration a nd exploitation activities by establishing "mixed 
ownership enterprises" with domestic or foreign firms "of recognized competency that are legally established in the country."
56 
53. The duration of the exploration period is four  years, renewable for a further two.  The 
exploitation period lasts 20 years (25 years for contr acts relating to natural g as) and is renewable by 
PETROECUADOR whenever this in the national interest. 
54. The State receives various payments from the exploration and exploitation of hydrocarbon 
deposits.  In contracts involving royalty payments , the minimum royalty is 12.5 per cent of gross 
crude oil production.  In the case of gas, the minimum royalty is 16 per cent. 
55. Firms signing contracts with the State must employ workers of Ecuadorian nationality in at 
least the following proportions:  95 per cent in th e case of manual workers, 90 per cent administrative 
staff, and 75 per cent technical staff.57  Within two years, 95 per cent of administrative staff must also 
be Ecuadorian. 
56. Activities relating to the transport, refining, storage and marketing of hydrocarbons can be 
carried out by PETROECUADOR or by domestic or foreign firms.  PETROECUADOR may perform 
such activities directly, or through partnership or operational consortium contracts, or by establishing 
mixed ownership enterprises.  In general, privat e firms (domestic or foreign) engaging in such 
activities do not have to sign a contract with the State, although prior authorization is required from 
the President of the Republic.  A contract with th e State is necessary for the construction of trunk oil 
and gas pipelines, however.58 
57. To engage in the marketing of petroleum derivatives, private firms must also have 
authorization from the National Hydrocarbons Directorat e of the Ministry of Energy and Mines.  This 
is automatically granted to entities fulfilling the re quirements established in the Regulation for the 
Authorization of Activities Relating to the Marke ting of Liquid Fuels Obtained from Hydrocarbons,59 
and the Regulation for the Authorization of Activitie s Relating to the Marketing of Liquid Petroleum 
Gas.60  The requirements apply to domestic and forei gn firms alike.  Private individuals or legal 
entities engaging in the marketing of hydrocarbon derivatives must sign contracts with PETROECUADOR for that purpose.
61 
58. The prices at which petroleum derivatives are sold  to the final consumer are regulated by the 
President of the Republic.62 
59. Approved marketing agents must apply to the Mi nistry of Energy and Mines for authorization 
to import or export liquid fuels deriving from hydro carbons, and must have their own or third-party 
                                                      
55 Hydrocarbons Law, Article 26. 
56 Hydrocarbons Law, Article 2. 
57 Hydrocarbons Law, Article 31. 
58 Hydrocarbons Law, Article 3. 
59 Executive Decree No. 2024, Official Journal 445/Suppl., 1 November 2001. 
60 Executive Decree No. 2282, Official Journal 508, 4 February 2002. 
61 Hydrocarbons Law, Article 69;  Executive Decree No. 2024, Article 11(a);  and Executive 
Decree No. 2282, Article 26. 
62 Hydrocarbons Law, Article 72;  and Executive Decree No. 17, Official Journal 14, 4 February 2003, 
and its reforms. WT/TPR/S/148 Trade Policy Review 
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infrastructure to store such fuels.63  The National Hydrocarbons Directorate determines the volumes of 
fuels that marketing agents may import or export, "o n the basis of their invest ments and their share of 
the national market".64 
60. Private enterprises enjoy certain benefits, su ch as exemption from customs duties and other 
taxes on imported goods needed for hydrocarbons e xploration and exploitation, provided that such 
goods are not being produced in the country.65  These exemptions are granted during the exploration 
period and during the first 10 years of exploitation.  Similar benefits are granted to the hydrocarbons, 
petrochemical and related industries during the cons truction period and for the first five years of 
operations.66 
61. Oil exports are exempt from VAT.  Nonetheless,  the National Congress, through Interpretive 
Law 2004-41, stated that " … the refunding of value added tax (VAT) [on local purchases or imports of goods used in the manufacture of exportable goods] does not apply to activities relating to the 
extraction, transportation and mark eting of crude petroleum, since petroleum is not manufactured but 
is ...  extracted from the respective deposits".
67  Several complaints by oil companies with regard to 
the payment of VAT are currently being heard in th e Fiscal Tribunal, the Supreme Court of Ecuador 
and international arbitral tribunals.  Other firms are resolving this issue through the Office of the 
Attorney General of the State a nd the Internal Revenue Service. 
(4) MANUFACTURING  
62. Between 1998 and 2003, the manufacturing sector accounted for an average of 13.6 per cent  
of GDP (excluding oil refining).  During the same period, the sector's leading activities in value-added 
terms were manufacturing of textiles and clothing products, preparation and preservation of shrimp, 
wood production and manufacture of  wood products, and prepara tion and preservation of fish 
(Table IV.4). 
Table IV.4 
Value added in manufactures, 1998-2003 
(US$ million at 2000 prices and percentages) 
  1998 1999 2000 2001a 2002a 2003a 
Manufacturing industries, excluding oil refining 2,458 2,329 2,170 2,233 2,248 2,318 
Production, processing and preservation of meat 7.3 7.7 8.6 8.4 8.7 8.9 
Preparation and preservation of shrimp 23.7 20.5 9.8 10.1 10.5 10.2 
Preparation and preservation of fish 6.0 7.2 7.8 7.8 8.1 7.7 
Manufacture of vegetable and animal o ils and fats 1.8 2.1 2.3 2.3 2.6 3.1 
Manufacture of dairy products 3.2 3.6 4.0 4.2 4.3 4.7 
Manufacture of grain milling and bakery  products 2.9 2.9 3.4 3.6 3.7 3.7 
Manufacture of sugar 2.5 3.4 4.1 4.2 4.1 4.0 
Manufacture of cocoa, chocolate and confectionery 
products 0.9 1.0 1.4 1.4 1.5 1.5 
Manufacture of other food products 2.8 3.4 3.4 3.4 3.5 3.5 
Manufacture of beverages 3.4 3.3 3.8 3.8 3.9 4.0 
Manufacture of tobacco products  0.3 0.4 0.4 0.4 0.4 0.4 
Manufacture of textiles and clothing products 16.5 16.4 18.8 18.3 18.3 18.3 
Production of wood and manufacture of wood 
products 8.5 9.3 10.5 10.0 9.4 8.7 
Table IV.4 (cont'd) 
                                                      
63 Hydrocarbons Law, Article 70. 
64 Executive Decree No. 2024, Article 21. 
65 Hydrocarbons Law, Article 87. 
66 Hydrocarbons Law, Article 87. 
67 Interpretive Law No. 2004-41, Official Journal 397, 11 August 2004. Ecuador WT/TPR/S/148 
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  1998 1999 2000 2001a 2002a 2003a 
Manufacture of paper and paper pr oducts 3.9 3.8 4.4 4.3 4.1 4.1 
Manufacture of chemicals and chemical products 4.9 4.5 5.1 5.1 4.7 4.9 
Manufacture of rubber and plastic products 2.6 2.4 2.7 2.9 2.7 2.5 
Manufacture of other non-metallic minera l products 4.3 4.3 5.2 5.3 5.1 5.2 
Manufacture of base metals and proce ssed products 1.4 1.0 1.2 1.2 1.2 1.4 
Manufacture of machinery and equipment 1.9 1.9 2.0 2.1 2.0 2.0 
Manufacture of transport equipment 1.1 0.5 0.7 0.9 0.9 0.8 
Manufacturing industries h.e.c. 0.2 0.2 0.3 0.3 0.3 0.3 
a Preliminary figures. 
Source:  Central Bank of Ecuador. 
63. The sector's modest performance is largely explained by the negative impact of the 1998-1999 
crisis.  Sectoral value-added contracted in real terms by 5.2 per cent in 1999 and by 6.8 per cent in 
2000.  In 1997-2004, the sector recorded average real  growth of 0.4 per cent per year, compared to 
2.3 per cent for the economy as a whole.  The manufacturing sector employed roughly 229,000 people 
in 2004, 11 per cent fewer than in 1998. 
64. A recent study by the MICIP and UNIDO s hows that in 2000 Ecuador was ranked second to 
last in productivity terms among 10 Latin American countries.68  Another study by the Central Bank 
of Ecuador identified the most productive branches of the manufacturing sector in 1997 as:  logging 
and lumber production;  manufacture of wood prod ucts;  production, processing and preservation of 
meat and meat products;  preparation and preservati on of fish and fish products;  and other food 
products.69 
65. The average value of manufacturing imports (ISIC classification) amounted to roughly 
US$4,670 million in 1998-2003, representing about 95 per cent of total average imports during this 
period.  The main products imported were motor ve hicles, machinery and non-electrical equipment, 
and radio, television and communications equipment. 
66. The average value of manufactured exports  between 1998 and 2003 (ISIC classification) 
amounted to US$1,670 million, just over one third of the average value of total exports during the 
same period.  Manufactured exports are dominated  by fishery products, which accounted for about 
46 per cent of this category between 1998 and 2003 .  Exports of canned fru it and vegetables and 
motor vehicles are also significant, although neither  of these industries averaged more than 6 per cent 
of total manufactured exports. 
67. Limited use is made of trade policy measures as tools of industrial policy.  The average MFN 
tariff for the manufacturing sector (ISIC classification)  stands at 11.5 per cen t, which is virtually 
identical to the general averag e of 11.4 per cent (Table III.1). 
68. A study conducted by the Ministry of the Economy and Finance shows that application of the 
Andean Community's common external tariff results in  significant variations in levels of effective 
protection granted to the different branches of manufacturing.70  For example, while sectors involved 
in the manufacture of transport equipment, the ma nufacture of grain mill and bakery products, and the 
production, processing and preservation of meat and meat products, enjoy effective protection ranging 
                                                      
68 MICIP and UNIDO (2004), p. 72. 
69 Central Bank of Ecuador (2002b), p. 5. 
70 Ministry of the Economy and Finance (undated), p. 29.  The term "effective protection" is based on 
the concept that the protection given to an industry depends on the tariffs levied on both inputs and finished products.  Effective protection is measured in terms of the average effective protection rate. WT/TPR/S/148 Trade Policy Review 
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from 72 to 104 per cent, sectors engaged in the manufacture of chemicals and refined petroleum 
products receive less than 10 per cent.  Most br anches of manufacturing enjoy effective protection 
levels that are well above those received by agricu lture.  In view of these results and the negative 
correlation between effective tariff protection and va lue-added as a proportion of output in the various 
branches of economic activity, the study suggests th at application of the common external tariff may 
have generated "resource alloca tion problems in the economy", a nd hence may have hindered the 
creation of higher levels of  value-added in Ecuador. 
69. The manufacturing sector can benefit from concessions on tariff duties and other taxes, 
including through maquila regimes and free zones (C hapter III (1)(iv) and (2)(iv)).  In contrast, 
official financing programmes appear limited (Chapt er III (2)(vi) and (3)(v));  and there are no state 
export insurance or guarantee programmes.  Ecuador  has applied safeguard measures on imports of 
ceramic tiles, medium density fibreboard and ma tches;  and antidumping measures on imports of 
cement and sorbitol (Chapter III (1)(viii) and (ix)). 
70. The automotive sector has benefited from a complementation agreement, signed between 
Ecuador, Colombia and Venezuela in 1993, and subse quently reformed in 1999.  The new agreement, 
which came into force in January 2000 for a rene wable 10-year period, establishes a common tariff 
between the signatories of 35 per cent for imports  of light vehicles with a maximum capacity of 
16 passengers, and those with a maximum cargo capacity of 4.5 tonnes (category 1).  In the case of heavy vehicles surpassing these limits (category 2) , the agreement establishes a 10 per cent tariff for 
Ecuador and a 15 per cent duty for Colombia and Venezuela.  Vehicles produced in any of the 
signatory countries that satisfy the specific rules of origin established by the General Secretariat of the 
Andean Community have duty-free access to the other signatories' markets.  The agreement prohibits 
the import of used motor vehicles and parts.  Ve hicle production in Ecuador averaged 21,916 units per 
year between 1999 and 2003, of which one quarter w as exported;  an average of 26,643 vehicles were 
imported per year during the same period.
71 
71. A study by the MICIP and UNIDO concludes that  while automobile exports to Colombia and 
Venezuela have increased significantly since 1990, to account for 2.1 per cent of total exports in 2001, 
the contribution of the automotive sector to GDP an d employment was relatively modest, at 0.11 per 
cent and 2.2 per cent, respectively.72  The same study shows that th e Complementation Agreement in 
the automotive sector provides advantages to th e autoparts and components industry in Ecuador, 
through tariff preferences granted by the signatories and rules of origin requiring assembly plants to 
incorporate a minimum percentage of materials orig inating in any of the signatory countries in order 
to export within the agreement framework.  Th e study concludes that the Ecuadorian autoparts 
industry has not made the most of these advantages, however.  It also states that the trade deficit 
recorded by Ecuador in respect of vehicle parts a nd components is mainly due to the fact that the 
industry is relatively uncompetitive compared to  its Colombian and Venezuelan counterparts.73 
72. In mid-2001 the National Competitiveness Council (CNC) was created to advise the President 
of the Republic "on issues relating to permanen t improvement of the country's competitiveness".74  
The CNC has 19 members, including the President of the Republic himself, several ministers, 
CORPEI, leaders of productive sectors and academic s, together with municipal and worker 
representatives.  The CNC prepared a National Comp etitiveness Agenda identifying several priority 
areas for action to improve competitiveness, incl uding human capital, infrastructure, financing, 
technology and legal certainty.  The CNC has also promoted initiatives in ar eas such as procedures, 
                                                      
71 General Secretariat of the Andean Community (2005). 
72 MICIP and UNIDO (2004), p. 59. 
73 MICIP and UNIDO (2004), p. 60. 
74 Executive Decree No. 1666, Article 2, Official Journal 370, 17 July 2001. Ecuador WT/TPR/S/148 
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design of policies to reduce the cost of air freight, and elimination of tariffs on hardware and software 
imports;  and it has promoted several laws including the Law on Electronic Commerce.75 
(5) ELECTRIC POWER  
73. Ecuador has a total installed capacity of 3, 765 MW.  In 2003, gross generation amounted to 
12,666 GWh, of which about 58 per cent came from hydroelectric stations and the remainder from 
thermal power plants and imports.  In that y ear, Ecuador imported 1,120 GWh from Colombia.  
Roughly 36 per cent of all electricity generated came from the Hidropaute hydroelectric plant.  Two hydroelectric plants are currently under construc tion (San Francisco and Mazar), whose combined 
installed capacity will be 424 MW.  Severa l thermal plants are also being built. 
74. The Government, acting through the Interinstitu tional Commission of the Electricity Sector 
and the Under-Secretariat for Electrification of the Ministry of Energy and Mines, formulates and 
coordinates policy in the sector.  The Interins titutional Commission advises the President of the 
Republic, with members including the National Elect ricity Board (CONELEC), the Central Bank, the 
Ministry of the Economy and Finance, the Ministry of Energy and Mines, the Solidarity Fund, the electric power transmission company, and the National Energy Control Centre (see below).  
CONELEC is responsible for developm ent and execution of sectoral policy.
76 
75. National policy goals for the sector, established in the Law on the Electricity Sector Regime, 
include the following:  providing a reliable electri city service that guarantees economic and social 
development;  fostering competitiveness among electri city markets and private-sector investments to 
ensure long-term supply;  protecting consumer rights and guaranteeing preferential rates for low-
income sectors;  regulating the technical and ec onomic operation of the system, and guaranteeing free 
access for stakeholders to transmission and dist ribution installations;  regulating electricity 
transmission and distribution, and ensuring that the ra tes charged are fair both for the investor and for 
the consumer.77 
76. Promulgation of the Law on the Electricity Sect or Regime in October 1996 triggered a major 
process to modernize the sector's legal framework .  At the present time there are 15 rules and 
26 regulations in force. 
77. The cornerstone of the structural reform pro cess that began following adoption of the Law on 
the Electricity Sector Regime was separation of the industry into three segments:  generation, 
transmission and distribution.  Until March 1999, all three activities were in the hands of the 
Ecuadorian Electrification Institute (INECEL), which also acted as the sector regulator.  From then 
onwards, INECEL ceased to function, and in its pl ace six generation companies and one transmission 
company were created, whose equity shares were transferred to the Solidarity Fund – an autonomous 
state body established in 1995 to channel privati zation proceeds into development programmes.  
Shares held by INECEL in the equity of distribution companies were also transferred to the Solidarity 
Fund. 
78. The Law on the Electricity Sector Regime requires the transfer of shares in electricity sector 
companies owned by the Solidarity Fund to be condu cted through competitive public procedures.  The 
                                                      
75 Central Bank of Ecuador (2002a), p. 5. 
76 Law on the Electricity Sector Regime, Article 5A, Official Journal/Suppl. 43, 10 October 1996. 
77 Law on the Electricity Sector Regime, Article 5. WT/TPR/S/148 Trade Policy Review 
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Solidarity Fund must make available to the private sector up to 51 per cent of the voting shares, or 
subscription to voting shares, in the equity of such companies.78 
79. The Law on the Electricity Sector Regime only a llows private enterprise to participate in the 
sector through concessions or permits awarded by the State.  Construction and operation of new 
generating projects envisaged in the Electrificati on Master Plan approved by CONELEC requires a 
concession or a permit.  Concessions are awarded th rough public processes that are open to domestic 
and foreign investors alike.79  The duration of a concession is dete rmined "for a period indicated by 
mathematical modelling, based on the inter ests of the State, investors and users."80  Construction and 
operation of generating plants with 50 MW capacity or less requires a permit from CONELEC.  
Permits may not be refused except in the event of failure to comply with environmental protection 
laws, or disqualification in respect of the technical conditions established by CONELEC for 
development of energy resources in the electricity sector.81 
80. The Law on the Electricity Sector Regime provides for only one electric power transmission 
company.82 
81. According to Article 34 of the aforementioned law, distribution companies enjoy concessions 
affording them exclusive supply rights in their respec tive geographic areas.  The authorities stated that 
concessions covered the entire country. 
82. The sector's legal framework includes several pr ovisions intended to stimulate competition.  
In particular, the Law on the Electricity Sector Re gime forbids collusion aimed at price setting, along 
with predatory practices and discrimination on access to  transmission and distribution installations.  It 
also establishes that no generating company may cont rol more than one quarter of total installed 
power capacity.  The Hidropaute firm is exempt fro m this requirement, but it may not hold more than 
33 per cent of installed capacity.  According to the authorities, Hidropaute's share currently stands at 
29 per cent. 
83. The prices of energy sales to final consumer s are regulated by CONELEC, and must reflect 
"the real costs of the service based on inte rnational quality and efficiency parameters".83  In 2003, the 
average price charged by distribution compan ies to their customers was US$0.0897 per kWh.84  
Although electricity charges have been rising in recent years, the authorities stated that "for 
socioeconomic reasons" the price of electricity was still not at a level that allowed for full cost recovery.  The authorities also said that to address the problem of the tariff deficit and ensure that 
distribution companies regained their financial ba lance, the President of the Republic had issued 
decrees allowing the State to absorb the deficit.  Apparently, since November 2001 the effective rates 
charged to the industrial sector (around US$0.0799 per kWh in 2003) correspond to the real average 
energy price.
85 
                                                      
78 Law on the Electricity Sector Regime, Article 28. 
79 Law on the Electricity Sector Regime, Article 29. 
80 Law on the Electricity Sector Regime, Article 29. 
81 Law on the Electricity Sector Regime, Article 30. 
82 Law on the Electricity Sector Regime, Article 11. 
83 Law on the Electricity Sector Regime, Article 53. 
84 Data from CONELEC available on line at:  http://www .conelec.gov.ec. 
85 Ramos and Neira (2003), p. 43. Ecuador WT/TPR/S/148 
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84. The Law on the Electricity Sector Regime establishes a subsidy from high consumption 
residential users to low-level c onsumers in each geographic zone.86 
85. The prices paid by "large consumers" under c ontracts lasting a minimum of one year are not 
regulated.  Only firms that satisfy certain techni cal and consumption requirements are eligible for 
inclusion in the large consumer category;  aver age monthly demand must exceed 650 kW during the 
six months preceding their application for admission to that category, with annual consumption of 4,500 MWh.  The share of large consumers rose from 4.3 per cent of total energy consumed in 2002 to 7.2 per cent in 2004.  Long-term contracts betwee n generators, large consum ers and distributors are 
made in the wholesale electricity market,
87 as are occasional transactions.  Administration of the 
wholesale market is the responsibility of the Nati onal Energy Control Centre (CENACE), a private 
non-profit institution formed by gene ration, transmission and distribution firms in conjunction with 
large consumers. 
86. Provisions governing the import and export of electric energy are set out in Andean 
Community Decision 536, which prohibits the imposition of tariffs or other restraints on imports or 
exports of electricity between Andean Community members.88  Electricity imports and exports must 
be conducted through the wholesale market.  Exports  require authorization from CENACE, and only 
the surplus generated over and above  what is needed to satisfy domestic demand may be exported.89  
Ecuador and Colombia also have an electrical interconnection with tota l effective transfer capacity of 
250 MW, which is scheduled to double as from 2007.  In December 2004, construction work on a 100 MW-capacity interconnection between Ecuador a nd Peru was concluded.  Imports of generation 
plants with capacities above 100 kW require a licence (Chapter III (1)(vii)). 
87. Despite modernization of the legal framework and the structural reforms implemented, the 
State continues to dominate the sector.  Through the Solidarity Fund, the State is the sole owner of the 
power transmission company and of five generating companies, representing just over three quarters of total gross energy generated.  The Solidarity Fund also has equity holdings in 19 of the country's 20 
distribution firms.  There are five private compan ies, all in the generating segment, with a total 
effective installed capacity of 475 MW (around 13 per cent of the total). 
88. There is an urgent need to increase private i nvestment in the electricity sector.  The National 
Electrification Plan estimates the industry's invest ment needs over the period 2004-2013 at almost 
US$3,000 million, the bulk of which will need to co me from private domestic and foreign investment, 
given the State's fiscal constraints.  Nonetheless, previous attempts to privatize the State's 51 per cent 
equity holding in electricity distribution comp anies were unsuccessful, partly because of strong 
opposition from several sectors of society.  The pr oblems that the wholesale electricity market has 
recently been going through, caused largely by the lo w level of payments by distribution companies to 
generators, have created an una ttractive environment for investment in new generating activities.
90 
89. Total losses sustained in 2003 by distribution companies amounted to 23.5 per cent of all 
electricity available at distribution level.91  In order to improve their management, a process was 
initiated to hire a temporary indepe ndent manager for the 13 distribu tion companies that are currently 
majority-owned by the Solidarity  Fund.  The process was declared void in February 2004, however, 
                                                      
86 Law on the Electricity Sector Regime, Article 53. 
87 Law on the Electricity Sector Regime, Article 45. 
88 Andean Community Decision 536 of 19 December 2002. 
89 Law on the Electricity Sector Regime, Article 10. 
90 CONELEC (2004). 
91 CONELEC (2004). WT/TPR/S/148 Trade Policy Review 
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after the only firm prequalified to submit a bid w ithdrew.  Several modalities were being studied in 
early 2005 with a view to reviving the process. 
(6) SERVICES  
(i) General features 
90. In 2004 the services sector, excluding public admi nistration, education, and social and health 
services, accounted for just under half of total GDP.  Ecuador recorded a deficit on its international 
services trade averaging around US$570 million be tween 1999 and 2003, with exports of services 
during this period averaging roughly US$850  million, and imports US$1,420 million. 
91. State participation in the services sector has gradually diminished over the past decade as a 
result of reforms to the legal framework, aimed, among other things, at attracting both domestic and 
foreign private investment.  Nonetheless several sector s of society have resisted any deepening of the 
privatization process in specific sectors, including telecommunications, where repeated attempts to 
privatize some of the large market players have not had the desired success.  This reduces the extent 
to which the changes hitherto made to the legal and institutional framework have been of help in 
overcoming the problems facing some sectors, includi ng low levels of investment and persistent 
inefficiencies. 
92. Ecuador has made specific commitments in the GATS framework in respect of several sectors 
(Table AIV.1). 
93. Under the horizontal commitments assumed in the GATS framework, Ecuador entered a 
commitment on the presence of natural persons in the sectors included in its Schedule of Specific 
Commitments.  Specifically , this entails allowing foreigners to account for up to 10 per cent of the 
ordinary workforce and 20 per cent of skilled or sp ecialist jobs, administrative posts, or management 
positions in firms with over 10 employees. 
94. The final list of Article II (most-favoured-na tion) exemptions includes audiovisual services, 
particularly certain measures envisaged in the Ib eroamerican Cinematography Integration Agreement 
and the Latin American Agreement on Film and Audiovisual Coproduction.  Ecuador signed both 
instruments along with Argentina, Brazil, Colo mbia, Cuba, Dominican Republic, Italy, Mexico, 
Nicaragua, Panama, Peru and Spain. 
95. Liberalization of trade in services is a key el ement of the common market that the members of 
the Andean Community are seeking to establish in 2005.  Since 1998, Ecuador and other Andean Community members have had a general framework of principles and rules for liberalization of 
services trade in the Andean region, contained in Decision 439.
92  The liberalization process 
envisaged in this instrument is based on a nega tive list approach:  member countries may maintain 
measures contrary to the market access and national treatment provisions of Decision 439 only if the 
measures are included in an inventory.  Inventor ies of measures maintained by each country were 
adopted in October 2001.93 
96. In the context of Decision 439, Ecuador's inve ntory contains roughly 70 measures relating to 
the following sectors (each sector's measures as a percen tage of the total are indicated in parentheses):  
business services (45 per cent), transport (20 per cent), communications services (15 per cent) and financial services (13 per cent).  The remaining me asures correspond to tourism, social services, and 
                                                     
 
92 Andean Community Decision 439 of 11 June 1998. 
93 Andean Community Decision 510 of 30 October 2001. Ecuador WT/TPR/S/148 
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leisure, cultural and sporting servi ces.  Sixty per cent of the measures represent restrictions on the 
principle of national treatment only, 30 per cen t on market access and the remainder on both.  
Decision 439 envisages the gradual lifting of measures included in the inventory, although a timetable 
for this has not been set. 
(ii) Telecommunications 
(a) Main features 
97. The telecommunications sector accounted for rough ly 3 per cent of GDP in 2003.  Between 
1998 and 2004, the number of main telephone lines gr ew to 1.6 million, just over double the number 
in 1998 and representing 12.5 lines per 100 inhabitants (Tab le IV.5).  The number of users of mobile 
cellular telephone services soared during the same  period, to reach a level of around 3.5 million 
subscribers in 2004.  This rapid growth reflects both the inability of fixed telephony companies to 
satisfy demand and the efforts made by mobile  phone companies in 2002 and 2003 to attract 
customers just before a new operator entered the sector.94 
Table IV.5 
Selected teleco mmunications indicators, 1997-2004 
 1997 1998 1999 2000 2001 2002 2003 2004 
Main telephone lines per 100 inhabitant s 7.5 8.1 9.1 9.7 10.0 11.0 12.2 12.6 
Cellular telephone subscribers per 
100 inhabitants 1.1 2.0 3.1 3.8 6.7 12.1 19.0 27.5 
Residential telephone connection costs (U S$) 400.0 293.8 135.7 88.0 88.0 60.0 60.0 60.0 
Percentage of main lines that are digital 89.0 86.8 8.9 89.8 94.4 95.2 98.7 99.2 
Cost of a three-minute local call (US$) 0.02 0.01 0.01 0.03 0.03 0.03 0.03 0.03 
Cost of a three-minute local cellular call (US$) 1.49 1.49 2.20 1.50 1.50 1.50 1.50 1.50 
Internet users per 100 inhabitants 0.1 0.1 0.8 1.4 2.6 4.2 4.4 5.21 
Source:   Database of the Superint endency of Telecommunications. 
98. Ecuador was one of the last Latin American countries to introduce reforms liberalizing its 
telecommunications market, through deregulatio n, the introduction of competition and the 
liberalization of foreign investment.  Until 2001, Andinatel and Pacifictel, which emerged from the 
break-up of the State telecommunications firm in 1997, enjoyed an "exclusivity regime" for fixed 
telephony services in their respective geographic supply areas, as part of a policy to make the firms 
more attractive with a view to their partial privatization.95 
99. In early 2005, roughly 94 per cent of the users of fixed telephony services were subscribed to 
Andinatel or Pacifictel.  Although since 2001 these firms have not enjoyed exclusive supply rights in 
their traditional geographic areas, neither has encroached on the other's market. 
100. The authorities consider that Andinatel and P acifictel need to become more efficient.96  For 
this purpose, in February 2003 Ecua dor agreed with the IMF to transfer management of Andinatel and 
Pacifictel to an independent firm for a three-year period.  However, the process of awarding the contract for temporary administration of these firm s was suspended in late January 2004, because, 
according to the authorities, the only participant in  the final stage of the process failed to satisfy 
several of the requirements set in the biddin g conditions.  The authorities indicate that the 
                                                     
 
94 Drees (2003). 
95 Ramos and Neira (2004), p. 36. 
96 IMF (2003a). WT/TPR/S/148 Trade Policy Review 
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International Telecommunications Union is providing  technical assistance to the Solidarity Fund in 
the context of preparations for a new process to hire  a management firm.  They also indicate that in 
early 2005 a date for the contracting process had still not been set. 
101. Private investment's share in the fixed tele phony sector has been increasing gradually since 
2002, when a fixed telephony concession was awarde d, along with two nationwide concessions to 
supply local, national and international phone ser vices using wireless technology.  The fixed 
telephony concession holder (Linkotel) supplies local  telephone services in and around the city of 
Guayaquil.  The holders of the concessions for wireless services (SETEL and ECUTEL) have 
requested a delay for start-up of their operations.  Two other companies, Etapa and Etapatelecom, 
supply fixed telephony services.  The first of these is  a municipal enterprise operating in the canton of 
Cuenca, while the second is owned by Etapa and has been operating throughout the country, except 
the canton of Cuenca, since November 2004.  It supplies local, national and international fixed-line services. 
102. There were two private operators (Otecel a nd Conecel) in the mobile phone market until 
December 2003, when Telecsa, owned by Andinate l and Pacifictel, began operations.  Otecel and 
Conecel are partly foreign-owned. 
103. Levels of competition in the market seemed to have increased.  According to the authorities, 
over the last two years the cost of international ca lls has fallen by 45 per cent;  in 2004, the average 
cost of a one-minute trunk call (Quito to Guayaqu il) was US$0.06, while an international call (Quito 
to Miami) cost US$0.27. 
(b) Legal and institutional framework 
104. On acceding to the WTO in 1996, Ecuador assu med commitments relating to the following 
telecommunication subsectors:  electronic and voice mail, online information and database retrieval, 
electronic data interchange, enhanced (value-added) facsimile services, code and protocol conversion, 
online data-processing and mobile cel lular telephone services.  In all of these services, Ecuador 
undertook not to subject consumption abroad, cross-border supply and commercial presence to 
limitations on market access or national treatment.
97 
105. Ecuador also participated in the negotiations  on telecommunication services that followed the 
Uruguay Round.  In the framework of the negotiations, it restated its commitment not to submit commercial presence and consumption abroad in m obile cellular telephony to  limitations on market 
access or national treatment.
98  Ecuador did not undertake to comply with the provisions of the 
Reference Paper, however.  The WTO Secretariat di d not have information on the legal instrument 
through which Ecuador ratified the WTO Fourth Protocol. 
106. The legal framework governing telecommunica tions has undergone a major transformation 
since the mid-1990s, when the Revised Sp ecial Telecommunications Law was passed.99  Since then, a 
large number of regulations have been adopted, including provisions relating to the concession of 
telecommunication services, interconnection, frequen cy charges, mobile cellular telephone services, 
carrier services, value-added services and the universal service regime.100 Andean Community 
                                                      
97 WTO document WT/L/77/Add.2, 20 July 1995. 
98 WTO document GATS/SC/98/Suppl.1, 11 April 1997. 
99 Revised Special Telecommunications Law,  Official Journal 770, 30 August 1995. 
100 The regulations forming the legal framework of the telecommunications sector include the 
following:  General Regulations of the Revised Special  Telecommunications Law (D ecree No. 1790, Official 
Journal 404, 4 September 2001); Regulation on the Award of Telecommunication Services Concessions Ecuador WT/TPR/S/148 
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Decision 462 also forms part of the sector's legal framework.101  The changes in the  legal framework 
have mainly been aimed at increasing competiti on and reducing the State's role in the sector. 
107. The Revised Special Telecommunications Law estab lishes an institutional structure consisting 
of the National Telecommunications Council (CONATEL), the National Telecommunications 
Secretariat and the Superintendency of Telecommunications.  CONATEL is the State agency 
responsible for formulating policy and a regulatory fra mework for the sector, establishing the terms of 
concessions, issuing interconnection regulations and approving rate ceilings.  The National 
Telecommunications Secretariat implements th e telecommunications policy defined by CONATEL 
(for example by preparing a National Telecommuni cations Development Plan), signing concession 
contracts, and approving and registering interc onnection agreements.  The Superintendency of 
Telecommunications is the supervisory body for te lecommunication operators and the radio spectrum. 
108. One of the key challenges in the sector is refo rm of the institutional framework, given the 
confusion that exists over the functions  and responsibilities of CONATEL, the National 
Telecommunications Secretariat, the Superintende ncy of Telecommunications and the National Radio 
and Television Council. 
109. The Revised Special Telecommunications Law states that the private sector (whether 
domestic or foreign) may not hold more than a  51 per cent stake in telecommunications firms in which the State has an equity interest (i.e. Andinatel and Pacifictel).  The law does not set any limit on either domestic or foreign private investment in new telecommunications enterprises, however. 
110. Provision of any telecommunication service, except resale, requires a concession or permit 
issued by the National Telecommunications Secr etariat, subject to prior authorization by 
CONATEL.
102  Requirements for obtaining a concession or permit are defined in the General 
Regulations to the Revised Special Telecommunica tions Law and the Regulation on the Award of 
Telecommunication Services Concessions.  Neither of these establish differential requirements based 
on the nationality of the applicant. 
111. Concessions are required for the provision of final and carrier services and for use of the radio 
spectrum.103  The General Regulations to the Revised  Special Telecommunications Law establish 
minimum conditions to be contained in concessi on contracts, including minimum expansion plans.104  
Concessions must be awarded through a competitiv e public process, unless the number of interested 
parties is less than the number of concessions av ailable.  Award processes must be conducted with 
"objectivity and equal conditions an d opportunities for all participants."105  Concessions are for 
15 years and may be renewed subject to prior re negotiation four years in advance.  They are 
transferable pursuant to the Law on Companies.  Al l concessions must be registered with the Public 
Telecommunications Registry, maintained by the National Telecommunications Secretariat.  Since 
                                                                                                                                                                     
(Official Journal 480, 24 December 2001); Regulation on the Local Fixed Telephone Service (Official 
Journal 556, 16 Apr il 2002);  Regulation on Interconnection (Off icial Journal 481, 26 December 2001); 
Regulation Governing Charges for the Use of Frequencie s (Official Journal 351/S uppl., 31 December 1999); 
Regulation on the Mobile Cellular Telephone Service (Official Journal 10, 24 August 1998); Regulation on the 
Provision of Value-Added Services (Official Journal 545, 1 April 2002); Regulation on Carrier Services (Official Journal 426, 4 October 2001); and Regulation on the Development Fund for Rural and Marginal Urban 
Areas. 
101 Andean Community Decision 462 of 25 May 1999. 
102 General Regulations to the Revised Speci al Telecommunications Law, Title VIII. 
103 Revised Special Telecommunications Law, Article 8. 
104 Regulation on the Award of Telecommunications Service Concessions, Article 8. 
105 Regulation on the Award of Telecommunications Service Concessions, Article 5. WT/TPR/S/148 Trade Policy Review 
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1996, eight concessions have been awarded for fixe d telephone services, three for mobile services and 
18 for carrier services.106 
112. Permits are needed in order to provide value- added services and install and operate private 
networks.  They are valid for five and 10 y ears, depending on the service, and cost US$500.107 
113. The legislation allows resale,108 but not call-back and by-pass calls.109 
114. Providers of services through public networks ha ve to allow interconnection to their network 
at any point where it is technically and economically feasible, to any service provider requesting it.110  
Interconnection agreements must be  negotiated within 60 calendar days, after which the parties may 
appeal to the National Telecommunications Secretar iat to settle outstanding issues within a further 
45 calendar days.  Discriminatory practices in charges or other interconnection conditions are 
prohibited.  Interconnection charges should be based  on costs plus a return.  The provider requesting 
interconnection should not have to pa y for network elements or insta llations that it does not need in 
order to provide its service.  Interconnection agr eements have to be submitted for approval and 
registration by the National Telecommunications Secretariat. 
115. There are contradictions between the vari ous legal provisions governing pricing in 
telecommunication services.  Whereas the Revised Special Telecommunications Law stipulates that 
"tariff rates for each of the telecommunication ser vices shall be established by the regulator", the 
General Regulations to the Revised Special Teleco mmunications Law gives s uppliers freedom to set 
the prices they charge consumers.  The authorities confirmed that the latter is what actually happens.  
Cross-subsidies between the services provi ded by a given operator are prohibited111, and, according to 
the authorities, these are gradually being eliminated.  The General Regulations to the Revised Special 
Telecommunications Law also prohibit subs idization of any telecommunication service.112 
116. In order to protect and promote competition in the sector, CONATEL has the authority to 
alter prices in the event of predatory practices or  pricing agreements between service providers.  It 
may also establish special rules for a dominant service  providers – i.e.  a provider that obtains 30 per 
cent or more of the gross income produced by a gi ven service, or which "in effect has direct or 
indirect control over prices in a market, market se gment or geographic area, or the … interconnections 
to its network".113 
117. The General Regulations to the Revised Sp ecial Telecommunications Law establish a 
universal service regime, defined as "the obligation to give access to a defined set of telecommunication services, approved by CONATEL,  to all inhabitants throughout the national 
territory, whatever their economic or social circ umstances or their geographic location, at an 
affordable price and of a proper standard of quality".
114  A Fund for Telecommunications 
Development in Rural and Marginal Urban Ar eas (FODETEL) has been established to finance 
                                                      
106 Article 8 of the Revised Special Telecomm unications Law defines carrier services as 
"telecommunication services that provi de the capacity needed to transmit  signals between specified network 
termination points". 
107 Resolution 072-03-CONATEL-2002. 
108 General Regulations to the Revised Special Telecommunications Law, Article 8. 
109 General Regulations to the Revised Special Telecommunications Law, Article 10. 
110 Regulation on Interconnection, Article 4. 
111 General Regulations to the Revised Special Telecommunications Law, Article 71. 
112 General Regulations to the Revised Special Telecommunications Law, Article 85. 
113 General Regulations to the Revised Special Telecommunications Law, Article 27. 
114 Regulation on the Fund for Telecommunications Development in Rural and Marginal Urban Areas, 
Article 2. Ecuador WT/TPR/S/148 
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projects undertaken in the framework of the univer sal service regime.  All telecommunication service 
providers are required to deposit one per cent of their revenues in FODETEL each year, unless they 
signed their contracts before this obligation was established. 
(iii) Financial services 
(a) General features 
118. Financial intermediation services account for 2.7 per cent GDP according to latest figures, 
compared to 3.1 per cent in 1998.  In early 2004, financial-sector assets (excluding those of the Ecuadorian Social Security Institute) totalled n early US$10,000 million.  The sector consists of 
23 commercial banks, four State development banks , 31 cooperatives, 11 financial companies and six 
savings and loan associations (Table IV.6).  There are also 40 insurance and two reinsurance 
companies.  Commercial banks hold roughly three quarters of total assets in the financial system, followed far behind by State development banks, coop eratives and financial companies.  The assets of 
insurance and reinsurance companies account for onl y 3.6 per cent of the total assets of the financial 
system. 
Table IV.6 
Structure of the financial system, 1998 and 2004 
 1998  2004  
 Number of 
entities Assets (% of total 
financial system) Number of 
entities Assets 
(% of total financial 
system) 
Private bank  40 75.9  23 74.0 
 Domestic  36 71.2  21 71.0 
 Foreign  4 4.7  2 3.0 
Public bank  4 16.7  4 10.5 
Other financial institu tions  54 5.1  48 11.9 
 Cooperatives  25 1.1  31 4.8 
 Mutual saving associations (mutualistas)   7 0.8  6 2.6 
 Financial companies  22 3.1  11 4.5 
Insurance and reinsurance  42a 1.8a  42 3.6 
Financial system assets 
(US$ million)b  11,823  9,516 
a Excluding reinsurance. 
b Excluding the Ecuadorian Social Security Ins titute and other social security institutions. 
Source: Superintendency of Banking and Insuranc e, and International Monetary Fund.  
119. The deep economic crisis of 1998-1999 significantly  weakened the sector, and by early 2005 
it had still not regained its pre-crisis asset levels.  In late 2003, financial-system assets represented 
34 per cent of GDP, way below the 51 per cent recorded in 1998.  The crisis drastically pared back the 
number of financial institutions ope rating in Ecuador.  The number of  commercial banks fell from 40 
to 23 between December 1998 and Ma rch 2004, and financial companies shrank by half, from 22 to 
11 (Table IV.6).  As of March 2004, 13 financial institutions that had been forced to close down 
during the 1998-1999 financial crisis  were still awaiting liquidation. 
120. Institutions that survived the crisis have had to adapt to a new setting, in which the United 
States dollar has been the country's currency of lega l tender since 2000 (Chapter I (1)(iv)).  This has 
spawned major changes in the structure of the fina ncial system and its asset composition, chiefly in 
the banking sector.  In this context, the authorities stated that the narrowing of financial spreads is 
forcing financial institutions to become more effici ent.  Moreover, firms have had to replace revenues 
previously obtained from forei gn-exchange speculation with incomes earned from differentiated WT/TPR/S/148 Trade Policy Review 
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services and new market segments.  The authorities also  stated that financial institutions have had to 
focus on strengthening methodologies for evaluating credit, liquidity and market risks. 
121. Formulation of general policy for the financial system, including oversight and supervision, is 
the responsibility of the Banking Board of the Superint endency of Banks and Insu rance.  This consists 
of the Superintendent of Banks and Insurance,  the General Manager of  the Central Bank, two 
members appointed by the President of the Republic and a fifth member appointed by the other four.  The Superintendency is tasked with safeguardi ng the stability, soundness and correct functioning of 
the institutions under its control.  The payments system is the responsibility of the Central Bank, 
which also has powers to approve and monitor the budget of State banks. 
122. In recent years, major efforts have been made to reform the sector's legal and institutional 
framework, primarily in terms of prudential norms .  In 2001, the Superintendency of Banks and 
Insurance adopted a risk-based supervision methodolog y and produced supervision manuals.  In early 
2002, it launched a strategic plan including a pro cess for improving the institution's management.  In 
late 2003, provisions were adopted on risk management processes
115 and the internal audit committees 
that institutions of the financial system need to have in place.116  The authorities indicated that in early 
2005 the Superintendency was focusing on implemen tation of the comprehensive risk management 
system in financial institutions, while also seeking to  establish rules of transpar ency to be applied by 
financial institutions concerning the conditions of their deposit-taking and lending operations. 
123. Financial institutions subject to special reser ve requirements must place 1 per cent of their 
deposits on reserve in the Bank Liquidity Fund (Chapter I (1)(iv)).117 
124. Ecuador participated in the negotiations on fi nancial services following the Uruguay Round, 
and accepted the Fifth Protocol on 23 December 1998.118  The WTO Secretariat did not have 
information on the instrument through which the Fifth Protocol was ratified.  During those negotiations, a commitment was made to bind the fi nancial services regime that was in force at that 
time. 
125. Ecuador's Schedule of Specific Commitments contains the following statement:  "Since 
3 November 1995, for reasons of monetary policy and banking and financial prudential 
considerations, no new banks, finance companies, home savings and loan mutual associations, or 
savings and loan cooperatives engaging in financia l intermediation with the public, or insurance or 
reinsurance companies, which are subject to c ontrol and supervision by the Banking Supervisory 
Authority, may be set up or established.  This  provision applies equally to national and foreign 
investors."
119  In the context of the present review, the aut horities stated that this measure had in fact 
expired in November 1998120, and that non-discriminatory minimum requirements for the constitution 
of new financial institutions had been established in  its place.  The authorities confirmed that, in early 
2005, there was no prohibition on establishing new fi nancial institutions or branches of foreign 
financial institutions in Ecuador. 
126. Apart from the restriction mentioned, Ecuador undertook not to subject cross-border supply, 
consumption abroad and commercial presence in rela tion to most banking and other financial services 
                                                      
115 Resolutions No. JB-2003 -601 of 9 December 2003  and No. JB-2004 -631 of 22 January 2004. 
116 Resolution No. JB-2003-586 of 21 October 2003. 
117 Codification of Resolutions of the Superintendency of Banks and Insurance and the Banking Board, 
Title VII, Subtitle VI, Chapter VI, Section I. 
118 WTO document WT/LET/288 , 18 February 1999. 
119 WTO document GATS/SC/98/Suppl.2, 26 February 1998. 
120 Banking Board Resolution No. JB-98-083 of 13 November 1998. Ecuador WT/TPR/S/148 
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to limitations on market access or national treatment.  The only sectors for which these commitments 
were not adopted were participation in issues of all kinds of securities and money broking. 
127. Ecuador made commitments on a wide range of insurance services, albeit with limitations.  
Cross-border supply and consumption abroad rema ined unbound.  In the case of supply through 
commercial presence, in addition to the horizontal rest riction applicable to all the financial services 
referred to above, Ecuador prohib its the establishment of representation offices and requires 50 per 
cent of all wages and fees of foreign insurance companies to go to Ecuadorian employees. 
(b) Banking services 
General features 
128. The banking sector is highly concentrated, with four firms controlling about 60 per cent of 
total commercial-bank assets:  Banco del Pichincha , Banco de Guayaquil , Banco Produbanco  and 
Banco del Pacífico .  The Central Bank of Ecuador has been the owner of Banco del Pacífico  since the 
1998-1999 economic crisis, although its  management is in independent hands.  Since 1998, the 
number of foreign banks has dropped from four to two and their share of total bank assets has shrunk 
from 4.7 to 3 per cent. 
129. In late 2004, the commercial-bank lending port folio amounted to US$3,580 million, almost 
double that recorded in late 1999.  The commercia l sector received 63 per cent of total credit, 
followed by consumption activities (25 per cent), hous ing (9 per cent) and microenterprise (3 per 
cent).121  At the same time, there has been a signifi cant improvement in asset quality since the 1998-
1999 crisis.  The size of the overdue and non-inter est-producing portfolio in relation to total loans 
dropped from 39 per cent in 1999 to 9 per cent in late 2004. 
130. Ecuador has four State development banks:  Corporación Financiera Nacional  (CFN), Banco 
Nacional de Fomento  (BNF), Banco del Estado  (BEDE) and Banco Ecuatoriano de la Vivienda  
(BEV).  Their activities are targeted essentially on the rural sector, housing, small and medium-sized 
industry, and the financing of social projects in the provinces and municipios  (see Chapter III (2)(vi) 
and (3)(v)).  Both the CFN and the BEV operate as second-tier banks.  In September 2004, roughly 
one fifth of the credit portfolio of these four banks was overdue or not  generating interest. 
131. Between early 2000, when the dollar was adopted as currency of legal tender, and late 2003, 
the weighted average interest rate on deposits fell fro m 8.4 to 4.01 per cent, and the weighted average 
rate on loans dropped from 15.57 to 10.23 per cent.  Nonetheless, the spread between borrowing and 
lending rates (6.22 per cent) has decreased by onl y one percentage point since the early 2000s and 
remains relatively large.  The authorities consid er that one of the fundamental reasons for the 
persistence of relatively large spreads is the e xpenditure structure that prevails among financial 
institutions. 
132. According to the Ecuadorian Superintendency of Banks and Insurance, the ratio between 
technical net worth and risk-weighted assets among priv ate banks stands at 12.2 per cent, compared to 
the legal minimum of 9 per cent. 
                                                      
121 Figures for late 2003. WT/TPR/S/148 Trade Policy Review 
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Legal framework 
133. The General Law on Institutions of the Fi nancial System and its enabling regulations122 are 
the key instruments governing the banking sector.  These are supported by resolutions issued by the 
Superintendency of Banks and Insurance, contai ned in the Codification of Resolutions of the 
Superintendency of Banks and In surance and the Banking Board. 
134. Public financial institutions are governed by thei r own laws, although they are also subject to 
provisions of the General Law on Institutions of the Financial System in rela tion to financial prudence 
and oversight by the Superinte ndency of Banks and Insurance. 
135. No legal restrictions are placed on cross-borde r supply or consumption abroad of banking 
services.  Banks and other firms established in Ecuador, as well as residents, may make deposits in 
banks established abroad or receive loans from them. 
136. The legislation sets no limits on foreign particip ation in the equity of banks, whether already 
existing or new.  Banks established in Ecuador may acquire shares of financial institutions established 
outside Ecuador, with prior authorization from the S uperintendency of Banks and Insurance.  A bank 
may only participate in the capital of other financ ial institutions, insurance firms and stock market 
institutions (i.e. stockbrokers a nd fund managers) operating in Ec uador, if these form part of a 
financial group headed by the bank in question.  As head of a financial group, banks may also acquire 
shares in firms classified as providers of auxiliary  services, e.g. security transport firms, collection 
services, automatic teller machines and real estate co mpanies.  In accordance with the General Law on 
Institutions of the Financial System, such fina ncial groups may consist of an insurance and 
reinsurance company, financial or auxiliary servi ce companies engaging in different activities, and 
companies operating within the framework of the Stoc kmarket Law.  In this case, the bank must own 
at least 51 per cent of the voting shares of each member of the group. 
137. Banks may extend mortgage loans and provide credit-card and leasing services.  They are also 
empowered to engage in foreign-exchange dea ling, and can provide securities intermediation or 
insurance services, but only through a stockbroker or  insurance firm within the same financial 
group.123  Before providing new financial services, banks must obtain authorization from the 
Superintendency of Banks and Insurance, which in turn requires approval from the Banking Board, 
and a prior opinion from the Central Bank. 
138. Foreign banks may establish a presence in Ec uador through subsidiaries, branches or 
representation offices.  The procedure to establish a subsidiary is defined in the General Law on 
Institutions of the Financial System and is the sa me as when establishing a bank with local capital.124  
In both cases, authorization from the Superintende ncy of Banks and Insurance is required.  The 
Superintendency's decision to grant authorization is based on an evaluation of the following factors:  
personal background of the promoter s to verify their responsibility, probity and economic solvency;  
economic and financial viability of the entity to be established;  the firm's draft articles of 
incorporation and public deeds;  and certificati on of the amount of paid-up capital.  The minimum 
amount of paid-up capital required to establish a ba nk subsidiary stands at US$2,628,940;  the 
requirement on technical net worth, set at US$7,886,820, must also be fulfilled. 
                                                      
122 Regulations to the General Law on Institutions of the Financial System, Executive Decree No.1852, 
Official Journal 475, 4 July 1994. 
123 Stockmarket Law, Article 4. 
124 General Law on Institutions of the Financial System, Articles 3-18. Ecuador WT/TPR/S/148 
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139. Before establishing a branch, a foreign firm must also obtain authorization from the 
Superintendency of Banks and Insurance;  and it must  show that it is established in accordance with 
the laws of its country of origin, empowered to cr eate branches and authorized to operate in Ecuador, 
both by its parent company and by the bank regulator in its country of origin.125  It must also maintain 
a permanent representative in Ecuador.  The mini mum amount of paid-up capital and technical net 
worth constituted is the same for establi shing a foreign bank as for a subsidiary. 
140. Before opening a representation office, a foreign bank must obtain prior authorization from 
the Superintendency of Banks and Insurance, and it must appoint an agent in Ecuador.  In this case 
authorization depends not only on the factors consid ered for authorizing subsidiaries and branches, 
but also on the "reciprocity policy implemented by the country of origin of the institution to be 
represented".126  Representation offices in Ecuador may not accept deposits, but fund placement is 
allowed. 
141. The General Law on Institutions of the Financial System does not limit the number of 
agencies that the subsidiaries or branches of forei gn banks may establish in Ecuador.  The opening of 
agencies in Ecuador requires authorization from the Superintendency of Banks and Insurance. 
142. The ratio between a bank's technical net worth and the weighted sum of its assets and 
contingent liabilities must be above 9 per cent.  Fi nancial-system institutions must also establish a 
legal reserve fund of at least half of their subscribed and paid-up capital.127 
143. Under the Law on Economic Transformation, the in terest rate on loans charged by banks may 
not exceed a ceiling of 1.5 times the Central Bank' s benchmark lending rate (Chapter I (1)(iv)). 
(c) Insurance 
144. The insurance sector consists of 42 companies,  of which 22 operate in  the life and general 
insurance segment, 11 in general insurance, and sev en in life insurance only;  two are reinsurance 
companies.  Insurance and reinsurance companies between them have 65 branches and 29 agencies in 
Ecuador.  In late 2003, the assets of the sector am ounted to US$341 million;  four companies have 
foreign participation in their ownership. 
145. Insurance activity has been expanding rapidly over the last few years.  Between 1999 and 
2003, contracted premiums grew at an average ra te of 43 per cent per year, to reach a level of 
US$458 million in late 2003.  Ninety per cent of pr emiums correspond to general policies, covering 
mainly vehicle, fire and transport insurance.  F ourteen firms account for just over 70 per cent of all 
premiums, with one, Colonial , accounting for over 10 per cent.  Another five, Equinoccial , AIG 
Metropolitana , Bolívar , Interocéanica  and Aseguradora del Sur , each absorb between 5 and 10 per 
cent of total premiums. 
146. The insurance sector is governed  by the General Law on Insurance128 and its enabling 
regulations.129 
                                                      
125 General Law on Institutions of the Financial System, Article 20. 
126 Codification of Resolutions of the Superintendency of Banks and Insurance and the Banking Board.  
Title II, Subtitle IV, Chapter I, Section I. 
127 General Law on Institutions of the Financial System, Article 40. 
128 General Law on Insurance, Official Journal 290, 3 April 1998. 
129 General Regulations to the General Law on Insurance, Official Journal 342, 18 June 1998. WT/TPR/S/148 Trade Policy Review 
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147. The General Law on Insurance prohibits the signi ng of insurance contracts in Ecuador with 
firms established abroad covering ri sks that could occur in Ecuador.130  The same applies to insurance 
contracts on the hulls of ships or aircraft register ed in Ecuador and on the transport of merchandise 
imported into the country.  The authorities stated that obtaining insurance services over the Internet 
from firms that are not legally established in Ecuador is also forbidden.  When there is no insurance 
firm established in Ecuador able to assume a given ri sk, the interested party may take out an insurance 
policy with a firm domiciled abroad, subject to prio r authorization from the Superintendency of Banks 
and Insurance. 
148. Insurance firms may contract reinsurance with  companies established in Ecuador or abroad131, 
although reinsurance firms established abroad wishi ng to undertake business in Ecuador must be 
registered with the Superintendency.  Registrati on is issued automatically to firms satisfying the 
requirements set out in Resolution No. JB-2001-289 of the Banking Board of the Superintendency of Banks and Insurance. 
149. Foreign insurance firms may establish a pr esence in Ecuador through subsidiaries or 
branches.  The procedure to establish a subsidiary of a foreign insurance firm is the same as when 
establishing a locally owned insurance company.  In both cases authorization is required from the 
Superintendency of Banks and Insurance, which takes the following factors into account:  draft 
contract of constitution of the firm, including the planned articles of incorporation;  economic and 
financial feasibility study of the company to be est ablished;  personal data on the proposed promoters 
and founders, in order to verify their responsibilit y, probity and solvency;  and a document certifying 
that the subscribed and paid-up cap ital has been actually been paid. 
150. The minimum paid-up capital needed to estab lish an insurance firm in Ecuador is 
US$460,000 for companies operating in all branches of general or life insurance.
132  For those 
operating in one of the general insurance segme nts, the required capital is US$197,177;  and for 
reinsurance companies the requirement stands at US$960,000.  New insurance and reinsurance 
companies also require a minimum net worth of US$3,943,410.133  Insurance companies must 
maintain a legal reserve fund in excess of 50 per cent of paid-up capital134, and they must deposit least 
10 per cent of their net profits in that fund at the end of each fiscal year. 
151. In order to establish a branch in Ecuador, a foreign insurance company must obtain 
authorization from the Superintendency of Banks an d Insurance, and certify that it has been operating 
in its country of origin for more than five year s and is authorized to establish business in Ecuador.  
The application for authorization must indicate the amount of capital allocated to the branch, which 
may not be less than that required in the General Law on Insurance.  Branches must also have an 
agent in Ecuador. 
152. All insurance firms need a "specific" certificate from the Superintendency to operate in one of 
the insurance segments defined in the General Law on Insurance, namely general insurance and life 
insurance.  New insurance compan ies may not operate in both segment s.  Reinsurance companies also 
require a specific operating certificate. 
                                                      
130 General Law on Insurance, Article 66. 
131 General Regulation to the Genera l Law on Insurance, Article 54. 
132 Executive Decree No. 1153, Offici al Journal 238, 9 December 2003. 
133 Codification of Resolutions of the Superintendency of Banking and Insurance and the Banking 
Board, Title IV, Subtitle IV, Chapter II, Section I. 
134 General Law on Insurance, Article 15. Ecuador WT/TPR/S/148 
 Page 103 
 
 
153. There are no limitations on the number of agencies an insurance company may open in 
Ecuador.  The General Law on Insurance does not envisage the possibility of a foreign insurance 
company establishing a presence in Ecuador through a representation office. 
154. The General Law on Insurance stipulates that  the terms and conditions of policies and 
premiums must be "the outcome of free competition in the insurance market".135  Nonetheless, 
policies and premiums have to be authorized by the Superintendency of Banks and Insurance before 
entering into force – a requirement that exists ma inly for reasons of consumer protection.  The 
Superintendency does not set the level of premiums. 
155. Although an insurance company may not engage in  activities that are unrelated to its business 
purpose, it may form part of a financial group c onsisting of a bank, a financial company or an 
investment and development corporation, together  with financial or auxiliary service companies.136 
156. Insurance premiums are subject to a 3.5 per cent levy, which is transferred to the 
Superintendency of Banks and Insurance.137 
(iv) Maritime transport 
157. Ecuador did not make any specific commitments  on maritime transport services in the GATS 
framework.  It is a member of the International Maritime Organization and has signed 20 conventions 
under its auspices.138 
158. Maritime transport plays a fundamental role in  the country's international trade.  Roughly 
95 per cent of its foreign trade, equivalent to some 26.5 million tonnes, was transported by sea in 
2003.  Ecuador has four main ports (Guayaquil, Es meraldas, Puerto Bolívar and Manta), which in 
2003 handled a total of 8.56 million tonnes of interna tional freight.  It also has three oil terminals 
(Balao, La Libertad and El Salitral) through whic h 15.73 million tonnes were exported in 2003, in 
addition to 17 private terminals. 
159. Ecuador's merchant and fishing fleet consists  of 1,327 vessels, of which 80 per cent are 
fishing boats.  Oil tankers and freighters account for 6 per cent of the total, while the rest are tourist 
vessels.  There are two st ate shipping companies, Flota Petrolera Ecuatoriana  (FLOPEC) and 
Transportes Navieros Ecuatorianos  (TRANSNAVE). 
160. The United Nations Conference on Trade and Development (UNCTAD) estimates that freight 
costs represented 9.8 per cent of c.i.f. import values in 2000, which is slightly above the average for 
Latin American and Caribbean countries.139 
161. The key regulations governing mar itime transport are contained in the Maritime Policy Code, 
the General Law on Ports140, the General Law on Maritime a nd Inland Waterway Transport141, the 
Law on the Facilitation of Exports  and Waterborne Transport142, the National Merchant Marine 
                                                      
135 General Law on Insurance, Article 75. 
136 General Law on Insurance, Article 34. 
137 General Law on Insurance, Article 67. 
138 Information from the International Maritime Organization available on line at:  
http://www.imo.org/includes/blastDataOn ly.asp/data_id %3D11061/status.xls 
139 UNCTAD (2002), p. 115. 
140 Supreme Decree No. 289, Official Journal 67, 15 April 1976. 
141 Supreme Decree No. 98, Official  Journal 406, 1 February 1972. 
142 Law No. 147, Official Journal 901, 25 March 1992. WT/TPR/S/148 Trade Policy Review 
Page 104 
 
 
Development Law143, the Law on the Strengthening and Deve lopment of Waterborne Transport and 
Related Activities144, the Regulation on Maritime Activities145, the General Regulation on Port 
Activity146, and the Regulation on Port Services.147  The body responsible for formulating policies for 
the sector is the National Merchant Marine and Port s Council, consisting of the Minister of Defence 
and delegates from the ministries of Foreign Trade,  Industrialization, Fishing and Competitiveness;  
Foreign Affairs;  Economic Affairs and Finance;  and Public Works.  Other members of the council 
include the National Planning Secretariat, the Ge neral Marine Command, the First Naval Zone and 
the Directorate General of Mariti me Interests.  The entity responsible for implementing shipping and 
port policies is the Merchant Marine and Coastal General Directorate. 
162. Starting in 1993, a series of reforms was initiated to encourage greater private participation in 
port activities.  These included adoption of the Ge neral Regulation on Port Activity, which requires 
commercial ports to be governed by the "landlor d" model, whereby port entities delegate the 
management, maintenance and devel opment of the port, or part thereof, to private firms, and these 
assume the risks involved in the corresponding activities and investments.148  Port entities maintain 
formal ownership of the ports and superv ise the performance of the private firms. 
163. Management, maintenance or development of a port, or part thereof, by a private firm, 
requires a permit or concession issued by the co rresponding port entity, which can be awarded only 
through public tender.  The authorities stated that tenders are open to private foreign-owned 
enterprises, regardless of their domicile. 
164. Permits authorize a firm to occupy and use, on an exclusivity basis, certain areas and existing 
installations to provide port services.  Permits ar e awarded for a maximum of five years and can be 
revoked at any time by the port entity for r easons of "necessity or port planning".149 
165. Concessions involve not only exclusive occupa tion and exploitation of certain areas or 
installations, but also their rehabilitation or expans ion, and are generally awarded for 20 years.  The 
General Regulation on Port Activity allows for exclus ive rights to be granted in the provision of port 
services as part of a concession.150 
166. The General Regulation on Port Activity also co vers authorizations for private firms to 
provide services in an area that has not been s ubject to concession or permit, and which therefore 
continues to be managed by the port entity in questio n.  To obtain an authorization, private firms must 
be previously registered with the Merchant Marine  and Coastal General Directorate.  Authorizations 
are issued automatically by the ports to firms that satisfy all the requirements defined in the 
Regulation on Port Services, and are granted for tw o years with the possibility of renewal.  The 
authorities stated that there are no restrictions on awarding authorizations to foreign-owned firms. 
167. Operation of the port of Esmeraldas was awar ded in concession to a foreign consortium in 
August 2004;  and a terminal in the port of Guayaq uil was also put out to concession.  The ports of 
Manta and Puerto Bolívar, and the three oil terminals,  remain in the hands of the respective State port 
bodies. 
                                                      
143 Supreme Decree No. 3409, Offici al Journal 824, 3 May 1979. 
144 Law No. 2003-18, Official Journal 204, 5 November 2003. 
145 Executive Decree No. 168, Official Journal 32, 27 March 1997. 
146 Executive Decree No. 467, Official Journal 97, 13 June 2003. 
147 Merchant Marine Directorate Resolution No. 110, Official Journal 406, 6 September 2001. 
148 General Regulation on Port Activity, Article 4. 
149 General Regulation on Port Activity, Article 34. 
150 General Regulation on Port Activity, Article 34. Ecuador WT/TPR/S/148 
 Page 105 
 
 
168. The Law on the Facilitation of Exports and Waterborne Transport reserves domestic 
waterborne freight and passenger trans port to vessels flying the Ecuadorian flag.151  Nonetheless, the 
Merchant Marine and Coastal General Directorate can  authorize national shipping companies to lease 
or rent out vessels of other flags on a bareboat charter basis "in exceptional cases".152  Such cases 
encompass the following situations:  temporary lack of transport capacity;  total or structural loss of a 
vessel;  major repairs to a vessel lasting over six m onths;  transport of specialized products;  needs 
relating to national security. 
169. The transportation of hydrocarbons from and to Ecuador is reserved for national shipping 
companies in which the State holds at least a 51 per cent equity stake.153  One of the State shipping 
companies (FLOPEC) specializes in hydrocarbons trans port.  For all other goods, use of a specialist 
maritime service provider is not a requirement.  Th ere are no limits on the total value or number of 
maritime transport service operations.  Any agreements  on freight distribution, division of profits, or 
others that Ecuadorian shipping companies sign must  be registered with the Merchant Marine and 
Coastal General Directorate.  Nonetheless, the National Merchant Marine and Ports Council may 
impose temporary restrictions on vessels from other countries if such countries do not grant 
reciprocity.154 
170. Decision 390 of the Commission of the Cartagen a Agreement, which amended several articles 
of Decision 314155, establishes mechanisms for Ecuador and other members of the Andean 
Community to act collectively vis-à-vis  third countries that take discriminatory action against 
maritime transport firms belonging to a member country.156  The procedure for applying the 
reciprocity principle to a third country or group of  countries in subregional maritime transport was 
adopted by Resolution 422 of the Board of the Cartagena Agreement.  No Andean Community 
country has requested restrictions, either total or partial, in the framework of Community regulations. 
171. No preferential treatment is given to national sh ipping lines in the application of port taxes or 
port service charges.  Ecuador grants no preferentia l treatment to any country in the provision of 
maritime transport or port services, or in access to and use of port installations.  While ships flying the 
Ecuadorian flag must have Ecuadorian crews157, the Merchant Marine and Coastal General 
Directorate can authorize the presence of foreign personnel on a vessel flying the Ecuadorian flag "for justified technical or operational reasons".  The ship 's master must always be an Ecuadorian national, 
however. 
172. Under the Internal Taxation Law, inland waterw ay and maritime transport of passengers and 
domestic and international merchandi se is exempt from VAT (Chapter III (1)(v)).  In addition, to 
promote the modernization, revival and developm ent of waterborne transport and shipbuilding, 
Ecuador exempts from VAT the following goods a nd services purchased by waterborne transport 
firms, shipbuilding yards and suitably qualified fi shing cooperatives and associations:  ships and 
vessels under ten years old, both imported and domesti cally produced;  imported fishing equipment, 
engines, machinery, spare parts and navigation equi pment;  construction, main tenance and repair of 
                                                     
 
151 Law on the Facilitation of Exports an d Waterborne Transport, Article 16. 
152 Regulation on Maritime Activity, Article 125. 
153 Law on the Facilitation of Exports an d Waterborne Transport, Article 15. 
154 Law on the Facilitation of Exports an d Waterborne Transport, Article 14. 
155 Andean Community Decision 314 of 6 February 1992. 
156 Andean Community Decision 390 of 2 July 1996.  The regulation governing Community 
application of the reciprocity principle in maritime transport was approved by Cartagena Agreement Board 
Resolution 422 of 5 August 1996. 
157 Regulation on Maritime Activity, Article 103. WT/TPR/S/148 Trade Policy Review 
Page 106 
 
 
vessels;  and bareboat rental.158  Imports of VAT-exempt goods are exempt from customs duties as 
well. 
(v) Air transport 
173. Under the GATS, Ecuador undertook not to submit consumption abroad and commercial 
presence in the case of aircraft repair and maintenance services to limitations on market access or 
national treatment.  It did not include any other sector relating to air transport in its Schedule of Specific Commitments. 
174. Between 1998 and 2004, interna tional passenger traffic averaged 1.68 million passengers per 
year, and annual freight transport averaged 155,190 tonnes.  The number of passengers on 
international flights grew at an average annual rate of 6.1 per cent and the volume of freight carried on 
international flights increased by an average of 4.4 per cent per year over the same period.  The points 
of entry to or departure from Ecua dor for practically all passengers and cargo on regular international 
flights are the airports of Quito (Mariscal Sucre)  and Guayaquil (Simón Bolívar).  Apart from these, 
Ecuador has two other international airports and 29 domestic airports. 
175. The leading national airline is the State-owned Transportes Aéreos Militares del Ecuador  
(TAME);  the private domestic airlines, Icaro,  Vipsa and Aerogal also operate in Ecuador. 
176. The key regulations governing air transport are contained in the Aeronautical Code
159, the 
Civil Aviation Law160, the Regulation on Concessions and Operating Permits161, the Regulation on the 
National Aeronautical Register of Ecuador162, and the Regulation on Non-regular Air Transport 
Services.  The legal framework also includes the Chicago Convention and Decision 582 of the 
Commission of the Andean Community.163 
177. Aeronautical policy is formulated in the Nati onal Civil Aviation Council,  a body consisting of 
a representative of the President of the Republic , the Commander-in-Chief of the Air Force, the 
Minister of Foreign Affairs, the Minister of Foreign Trade, Industrialization, Fisheries and 
Competitiveness, the Minister of Tourism, and repr esentatives of domestic aviation firms, Chambers 
of Production and the Federation of Chambers of T ourism.  The Civil Aviation General Directorate, 
attached to the Office of the President of the Republic, is responsible fo r technical and operational 
oversight of the sector. 
178. The Aeronautical Code stipulates that the supply of air transport services requires a State 
permit.164  Domestic air services may be operated only by persons of Ecuadoria n nationality or legal 
entities established in Ecuador, whether local or foreign-owned.165 
179. Rights to provide air transport services are granted through concessions or permits.  
Concessions on domestic or international air services, whether regular or non-regular, are awarded to 
firms established in Ecuador under domestic or fore ign ownership.  Foreign firms not established in 
                                                      
158 Law on the Strengthening and Development of Waterborne Transport and Related Activities, 
Article 6. 
159 Supreme Decree No. 2662, Official  Journal 629, 14 July 1978. 
160 Supreme Decree No. 236, Official  Journal 509, 11 March 1974. 
161 Executive Decree No. 1040, Official Journal 212, 17 November 2003. 
162 Ministerial Agreement No. 1128, Official Journal 451, 26 October 1977. 
163 Andean Community Decision 582 of 4 May 2004. 
164 Aeronautical Code, Article 115. 
165 Civil Aviation Law, Article 45. Ecuador WT/TPR/S/148 
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Ecuador may also apply for a permit to provide regular or non-regular international services.  
Concessions last for five years, and permits for th ree;  both are renewable and non-transferable unless 
authorized by the National Civil Aviation Council.  In applying for a permit, foreign firms must 
undertake to obtain domicile in Ecuador  if the application is approved.166  The requirements to be 
satisfied by firms applying for a permit are est ablished in the Regulation on Concessions and 
Operating Permits for the Exploitation of Air Servic es in General.  The Aeronautical Code stipulates 
that permits and concessions may not gran t exclusive rights to provide any service.167 
180. The National Civil Aviation Council is responsib le for awarding permits and concessions to 
operate regular and non-regular air transport ser vices, both domestically and internationally.  
Providing an air transport service also requires an operating certificate, issued by the Civil Aviation 
General Directorate, stating that the applicant is equipped to carry out the respective operations 
"safely and efficiently".168 
181. Until 2000, the award of permits to foreign fi rms to operate international air services was 
governed exclusively by the principle of real and e ffective reciprocity, as defined in bilateral treaties 
or agreements.  Nowadays, however , permits are granted on a basis of "flexible reciprocity", a 
principle defined as "the right to provide intern ational passenger and freight transport services from 
and to Ecuador, provided equivalent rights are gr anted to Ecuadorian transport firms by the competent 
authority of the flag State to which the applicant airlines belong."169  The flexible reciprocity principle 
allows a firm from a foreign country that has not si gned an aeronautical agreem ent with Ecuador to be 
granted a permit to provide  air transport services.   Nonetheless, the Regulation on Concessions and 
Operating Permits for the Exploitation of Air Servic es in General requires such firms to submit, along 
with their permit application, a "written statement that their Government is willing to grant similar rights to an Ecuadorian airline."
170  At the beginning of 2005, one airline (CARGOLUX) had obtained 
an operating permit to provide international ai r freight services under the flexible reciprocity 
principle. 
182. Ecuador has signed bilateral instruments on air transport with 21 countries:  eight South 
American, six from Europe, one Caribbean and six from Central and North America.  In addition, 
Ecuador adopted Decision 582 along with the other members of the Andean Community171, whereby 
member countries agreed to grant mutual rights to embark passengers and cargo in a country other 
than the airline's home country, bound for anot her Andean Community country other than the 
transport operator's home country (fifth freedom traf fic rights).  The same right is granted for the 
operation of non-regular passenger flights where no re gular air services exist between the points in 
question.  Decision 582 requires member countries of the Andean Community to grant fifth freedom traffic rights for non-regular international car go flights between member countries and third 
countries.
172 
183. The prices charged by airlines for passenger transport are not regulated, but must be 
registered with the Civil Aviation General Direct orate.  The latter sets minimum rates for domestic 
                                                      
166 Regulation on Concessions and Operating Permits fo r the Exploitation of Air Services in General, 
Article 6. 
167 Aeronautical Code, Article 128. 
168 Aeronautical Code, Article 116. 
169 Regulation on Concessions and Operating Permits fo r the Exploitation of Air Services in General, 
Article 3. 
170 Regulation on Concessions and Operating Permits fo r the Exploitation of Air Services in General, 
Article 6. 
171 Andean Community Decision 582 of 4 May 2004. 
172 Decision 582, Article 10. WT/TPR/S/148 Trade Policy Review 
Page 108 
 
 
freight and for international freight transport origin ating in Ecuador.  Airlines may charge any price 
above the minimum rate, but must register this with  the Civil Aviation General Directorate.  At the 
present time, the minimum rate for domestic freight transport is US$0.25/kg. (US$0.52/kg. for freight 
transported from and to the province of Galápago s), and US$0.15/kg. for international freight 
transport.173 
184. There are no requirements to use national service providers in air transport. 
185. The Civil Aviation Law makes the constructi on, operation and maintenance of civilian 
airports and aerodromes a State responsibility174, although the latter may delegate aerodrome and 
airport maintenance, development or construction to pr ivate firms, either domestic or foreign, through 
a bidding process.175  Under the Civil Aviation Law, the Pr esident of the Republic may authorize 
municipios  to build, administer and maintain airports.176  Duly authorized municipios  may carry out 
such activities themselves or delegate them to private firms. 
186. Responsibility for the operation and management of the main airports of Quito and 
Guayaquil, and the construction of a new airport in  each city, has been transferred to the respective 
municipios .177  In the case of the Mariscal Sucre international airport, the municipio  of the 
Metropolitan District of Quito awarded a 35-year concession to a consortium of mainly Canadian-
owned firms to operate the existing airport, and build and operate a new one to replace it. 
187. To carry out any "related" activity (e.g. recep tion and dispatch of passengers and aircraft, 
passenger services or aircraft repair and maintena nce), an operating permit must be obtained from the 
Civil Aviation General Directorate.  Firms requestin g such permits may be locally or foreign-owned 
but must be domiciled in Ecuador.  At the present time, the State has an equity holding in two related 
service companies, one with activities in the airports  of Quito and Guayaquil, and the other in the 
airport of Latacunga.  In early 2005, a total of  72 operating permits had b een granted for related 
activities. 
188. The Civil Aviation Law requires the staff of any domestic or foreign firm, "with an 
operational and maintenance centre in Ec uador" to consist of Ecuadorian citizens.178  Foreign staff 
may be hired only when the Civil Aviation General Directorate is given "authoritative certification" 
that there are no technically qua lified Ecuadorian staff available.179  In such cases, the law requires 
                                                      
173 Civil Aviation General Directorate Resolution No. 164 of 27 September 2002, and Civil Aviation 
General Directorate Resolution No. 136 . 
174 Civil Aviation Law, Article 1. 
175 Civil Aviation Law, Article 1. 
176 Civil Aviation Law, Article 1. 
177 Executive Decree No. 885 of 23 October 2000;  and Executive Decree No. 871 of 9 October 2000. 
178 Civil Aviation Law, Article 43. 
179 Civil Aviation Law, Article 44. Ecuador WT/TPR/S/148 
 Page 109 
 
 
firms that hire foreign employees to "provide suita ble training to the Ecuadorian staff that will replace 
them (i.e. the foreign staff), within a deadline to be  established by the Aeronautical Authority in each 
case".180 
189. In the context of this review, the authorities i ndicated that the State does not award subsidies 
to any firm in the air transport sector. 
190. International air freight transport is exempt fro m VAT.  In contrast, domestic air freight is 
subject to VAT, except in the case of cargo moving from and to the province of Galapagos (Chapter III (1)(v)).
181 
                                                      
180 Civil Aviation Law, Article 44. 
181 Internal Taxation Law, Article 56. Ecuador WT/TPR/S/148 
 Page 111 
 
 
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