Turning off the import surcharge spigot

Collapsing oil prices induced Ecuador to assess import charges, but the country is now looking toward free trade

By: Chris Gillis
Photo: Michael E Hall / Shutterstock.com
   It’s easier for a country to turn on an import surcharge than it is to turn one off.
   Import surcharges are a source of valuable revenue for governments, especially those with struggling national economies.
   However, Ecuador successfully ended a controversial set of import surcharges June 1, and proudly announced the program’s conclusion during a July 21 World Trade Organization meeting.
   Ecuador imposed the import surcharges in March 2015 to help offset the country’s deteriorating balance of payments due to a steep drop in oil prices starting in late 2014. The tariff surcharges were initially fixed at between 5 percent and 45 percent and were applied to about 3,000 tariff lines, or 38 percent of the country’s total.
   Following an earthquake in April 2016, Ecuador decided to extend the import surcharges for one more year, to June 2017.
   WTO members facing balance-of-payment difficulties may apply import restrictions under the General Agreement on Tariffs and Trade (GATT) and General Agreement on Trade in Services (GATS) provisions. The member applying for new import restrictions or substantially increasing existing ones is obliged to consult with the WTO’s Committee on Balance-of-Payments Restrictions either after taking the action or before doing so if prior consultation is practicable and is then subject to periodic review by the committee.
   During the six earlier rounds of consultations by the committee on Ecuador’s import surcharges, the WTO said its members were divided on whether the South American country’s action complied with the trade body’s rules. Ecuador was urged to dismantle the surcharge as soon as possible.
   In announcing the end to the import surcharges, Humberto Jiménez Torres, Ecuador’s vice minister of negotiations, integration and trade defense within the Ministry of Foreign Trade, told the WTO committee that the temporary measure helped the country stabilize its financial situation.
   However, some WTO members expressed concern that Ecuador may adopt new measures to replace the former import surcharges, to which Jiménez Torres responded that his government was neither considering reestablishing nor creating any new safeguard measure for balance of payments purposes. In fact, he said Ecuador is looking forward to boosting trade by entering additional free trade agreements.