Free-Trade Pact Opens Ecuador to EU Automakers

BRUSSELS – A free-trade deal struck between the European Union and Ecuador should benefit automakers by increasing market access in the South American country, the European manufacturers say.

ACEA welcomes Ecuador’s inclusion into the Andean free-trade agreement previously concluded by the EU with Peru and Colombia. Ecuador will phase out its current 35% to 40% tariff on automobiles over the next seven years, eventually allowing European automakers to export to the country duty-free.

BMW, Land Rover, Nissan and Leyland Trucks are among the automakers that export some of their Europe-produced vehicles to Ecuador.

“Our industry also understands that Ecuador simultaneously expressed that it had no intentions of extending the current quota system applicable to fully built-up and semi-knocked-down automobiles,” ACEA says in a statement.

In August 2011, the Ecuadorian government acted to support domestic vehicle assemblers by introducing tariffs of 10% to 18% for complete-knocked-down cars and between 5% and 9% for CKD light trucks.

“ACEA will monitor this issue very carefully to ensure that EU manufacturers will indeed have full access to the Ecuadorian market based on the letter and spirit of the free-trade agreement,” the statement says.

ACEA also applauds a ministerial agreement “essentially granting equivalence to EU technical regulations” in Ecuador.

“European vehicles are the safest and cleanest in the world, and Ecuador’s acceptance of European standards can ensure the elimination of non-tariff barriers for European manufacturers when exporting to Ecuador,” the statement says. “Our industry will closely follow the implementation of this regulation with regard to the automotive sector, which is essential to create a free and fair trade environment between the EU and Ecuador.”

The EU’s executive arm, the European Commission, also is optimistic.

“The agreement will…provide improved access to the Ecuadorian market for many key EU exports, for example in the automotive sector,” an EU communiqué notes. “More importantly it will also create a stable and predictable environment that will help boost and diversify trade and investment.”

Both parties agreed on the deal in July after a delay dating back to 2008, and recently published the text of the agreement that lays out specifications for the auto sector.

One provision states both the EU and Ecuador must allow “specialized services in technology, engineering, marketing and sales for the automotive sector” to be offered in each other’s territories, either directly or though contractual service suppliers or independent consultants.

According to United Nations data, exports of gasoline-powered vehicles from the EU to Ecuador from 2009 to 2013 were valued at $125.1 million, while diesel vehicles added $16.3 million.

Ecuador is a member of the Andean Community Common Automotive Policy, initially with Colombia and Venezuela (which withdrew in 2006). Modified in 1999, the Andean community maintains a 35% tariff on automobiles imported into Ecuador, a 10% tariff for trucks and buses, and duties ranging from 5% to 15% for automotive parts.

A document on the EU’s market-access database states ACCAP “initially favored local investment via the requirement of a minimum local content of 24% in order to qualify for reduced import duties,” but that provision was eliminated in the 1999 agreement to comply with World Trade Organization policy.

The U.S. Department of Commerce in 2011 said Ecuador had much work to do in terms of trade facilitation. It noted “the chaotic customs system creates disincentives to import goods through formal channels, and incentives for contraband. Many auto parts, for example, enter disguised as other goods that carry lower (or zero) customs duty.”

– with Hanna Lange-Chenier in Ottawa