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Cablegate: Ecuador Raises Tariffs to Buffer Balance of Payments

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RR RUEHWEB

DE RUEHQT #1144 3502147
ZNR UUUUU ZZH
R 152147Z DEC 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC 9733
INFO RUEHBO/AMEMBASSY BOGOTA 7876
RUEHCV/AMEMBASSY CARACAS 3301
RUEHLP/AMEMBASSY LA PAZ DEC LIMA 2941
RUEHGL/AMCONSUL GUAYAQUIL 3966
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/USDA FAS WASHDC 0617

UNCLAS QUITO 001144

SENSITIVE
SIPDIS

USTR for Bennett Harman

E.O. 12958: N/A
TAGS: ETRD ECON EFIN EC
SUBJECT: ECUADOR RAISES TARIFFS TO BUFFER BALANCE OF PAYMENTS

REFTEL A: Quito 1124
B: 07 Quito 2413

1. (SBU) Summary: On November 26, the GOE raised tariffs to WTO
ceiling limits on 940 consumer goods from non-FTA partners.
Foodstuffs, white goods and small appliances, paper products, and
others have been increased to an average rate of 29%. It appears
the GOE instituted this largely as a balance of payments measure to
curb imports. End Summary.

2. (SBU) Ecuador's Council for Foreign Trade and Investment
(COMEXI), the GOE's trade policy committee, increased import tariffs
on 940 products. COMEXI stated that imports of those products
totaled $1 billion, and the tariff hike should increase government
revenues by $85.5 million. The majority of the 940 products
previously faced tariffs of between 5 and 20%. The tariffs have now
been raised to the maximum levels allowable under Ecuador's WTO
commitments. The average tariff for the 940 products was 18%; with
the increases it is now 29%.

3. (U) Products subject to tariff increases include foodstuffs
(fish, meat, fruit and vegetables, nuts, teas, cereals, rice, and
condiments); white goods such as stoves, ovens, and microwaves;
small appliances such as blenders and hairdryers; paper products
(notebooks, toilet paper, diapers); floor coverings; suitcases and
purses; cameras, and decorative household items, among other
products. Tariffs on some construction materials were also raised.
Notably, the tariff on cellular phones was raised to 15% (after
being dropped from 15% to zero in September).

4. (U) The tariff increases will not apply to products from FTA
partner countries, meaning products from important trading partners
Colombia, Peru, and Chile will not be affected. However, U.S. and
Chinese products will be. Approximately $160 million worth of U.S.
imports will be affected, with washing machines, optical media,
radio and television electronic parts, sauces and condiments, and
sound systems at the top of the list. Some toys, luxury vehicles,
kitchenware, and carpets will also be affected. Cell phones are
most affected, but since the tariff on cell phones was only dropped
to zero in September, the increase merely raises the rate back to
where it was in August.

5. (SBU) The purpose of the tariff increases was reportedly to
reduce the impact of the financial crisis, falling petroleum prices,
and the increase in prices of inputs. According to the document
issued by COMEXI announcing the increases, tariffs constitute "an
instrument of economic policy that should promote productive
activities in the country and establish methods of protecting
national production." However, business people in Ecuador have said
they believe it is an attempt to curb imports. Some products, such
as cell phones, are not manufactured in Ecuador at all, so the
argument for protecting national production does not hold for this
product. The President of the Chamber of Commerce of Quito
complained that the measure would increase contraband as importers
seek to avoid the higher tariffs.

6. (SBU) Comment: This is the latest in a string of tariff
adjustments by the GOE, following tariff reductions on inputs. Last
fall, the GOE took similar action, reducing tariffs on inputs and
increasing them on clothing, jewelry, foodstuffs, and other
consumption goods (ref B). However, this year's measure increases
tariffs much more than before - to WTO ceiling rates, and appears to
be aimed at curbing imports in response to Ecuador's deteriorating
balance of payments situation as oil prices fall (ref A). This
measure alone will not be sufficient to address the balance of
payments pressure, since this does not cover a wide swath of
imports, including capital and intermediate goods and goods imported
from FTA partners. If oil prices remain low, we may see more of
these measures or non-tariff measures. In fact, COMEXI recently
instituted a new standards requirement that also appears to be aimed
at curbing imports.

HODGES

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