ECUADOR ECON WEEKLY: IMPORT TARIFFS INCREASE; RETURN TO

UNCLAS QUITO 002413

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EINV EC
SUBJECT: ECUADOR ECON WEEKLY: IMPORT TARIFFS INCREASE; RETURN TO
OPEC, BANK SUPER LOSES VETO, TAX EVASION

REF: a) QUITO 1969, b) Quito 999


1. (U) The following is a weekly economic update for Ecuador that
reports notable developments that are not reported by individual
cables.

Import Tariffs to Increase
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2. (U) On October 24, Ecuador's Council on Foreign Trade and
Investment (Comexi) approved a proposal to increase tariffs on 567
industrial goods and agricultural products. The proposal is part of
the second phase of a tariff reform program initiated in August
(reftel a); the first phase involved reducing tariffs on raw
materials and inputs. According to Genaro Baldeon, Under Secretary
for Commerce and Investment in the Ministry of Industry and
Competitiveness, Secretary of Comexi, and author of the tariff
proposal, the proposal's objective is to protect national production
and increase fiscal collection by $654 million per year. Products
that will be subject to higher tariffs include clothing, jewelry,
farm products (i.e. meat, vegetables, fruit, coffee, cacao, tobacco
and flowers),and "special consumption" goods such as cell phones
and videogames. According to the GOE, the increased tariff rates
are below WTO bound rates. Private sector members of Comexi opposed
some of the tariff increases, notably for cellular phones, but the
government members of the commission approved the proposal in its
entirety.

Ecuador to Return to OPEC
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3. (SBU) On October 14 the GOE sent a letter to the OPEC
Secretariat, stating Ecuador's intention to return to the

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Organization of Petroleum Exporting Countries (OPEC). Diego Stacey,
Under Secretary in the Ministry of Foreign Relations, commented that
Ecuador wants to participate in the November 2007 OPEC Summit in
Saudi Arabia. However, Ecuador faces a debt to OPEC of $5.7 billion
left over from when it withdrew from the organization in 1992 (at
the time, Ecuador's Energy Minister Andres Vivas announced that
Ecuador was leaving the organization but would remain an associate).
The GOE claims it received a response granting Ecuador's request to
attend the summit on October 23.

Superintendent of Banks Loses Veto Authority
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4. (SBU) In August, President Correa presented a complaint to the
Constitutional Court stating that the Superintendent of Banks'
ability to veto Banking Board decisions was unconstitutional. On
October 1, the Constitutional Court resolved unanimously to
eliminate the Superintendent's veto authority. The Court indicated
that this decision would avoid granting the Superintendent excessive
power. (Current Superintendent of Banks Vergara was appointed by
Congress, and Correa has accused him of being incompetent and
favoring banking interests over state interests on several
occasions. Correa appointees make up three out of the five Banking
Board members (reftel b) and Correa evidently chaffed at the idea
that the Vegara could block Board decisions).

Income Tax Evasion
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5. (SBU) The El Comercio newspaper reported data from Ecuador's
Internal Revenue Service (SRI) October 15 showing that only 44% of
the 54,375 companies in Ecuador pay income taxes. According to SRI
statistics, tax evasion is estimated to be almost $3 billion. In
2007, SRI expects to collect only $1.6 billion in income taxes. It
noted that many important company conglomerates declare losses - for
example, the 17 most important business conglomerates in the country
own 674 companies, but only 41% of those companies pay taxes.

JEWELL