WORLD TRADE
ORGANIZATIONG/SG/Q2/ECU/8
31 October 2003
(03-5804)
Committee on Safeguards Original:  Spanish
NOTIFICATION UNDER ARTICLE 12.1(a) OF THE AGREEMENT ON
SAFEGUARDS ON INITIATION OF AN INVESTIGATION
AND THE REASONS FOR IT
NOTIFICATION UNDER ARTICLE 12.1(c)
OF THE AGREEMENT ON SAFEGUARDS
Replies to Questions Posed by CHILE1 Regarding the Notification from ECUADOR2
The following communication, dated 27 October 2003, has been received from the Permanent
Mission of Ecuador.
________________
As requested at the regular meeting of the Committee on Safeguards on 20 October, I hereby
submit my delegation's replies to the questions posed by Chile.
MEETING OF THE COMMITTEE ON SAFEGUARDS – MONDAY 20 OCTOBER 2003Safeguard Applied by Ecuador to Imports of Fibreboard
Questions regarding the application of the definitive safeguard measure on imports of
fibreboard adopted by the Foreign Trade and Investment Council of Ecuador (hereinafter referred to
as 'COMEXI').
I. CLARIFICATION OF QUESTIONS POSED BY CHILE AT THE MEETING OF THE
COMMITTEE ON SAFEGUARDS LAST APRIL
1. Please describe the analysis carried out by the Ecuadorian investigating authority which
led it to conclude that the eight subheadings under tariff heading 4411 are like products or
products directly competitive with each other.  Please describe the analysis carried out by the
Ecuadorian investigating authority which led it  to conclude that the eight subheadings under
tariff heading 4411 are products alike to or  directly competitive with imported goods.
Reply
The investigating authority did not conclude that the eight subheadings under tariff heading
4411 were like products or products directly competitive with each other.  The investigating authority
                                                     
1 G/SG/Q2/ECU/7
2 G/SG/N/6/ECU/3 and G/SG/N/10/ECU/2G/SG/Q2/ECU/8
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did not conclude that the eight subheadings under tariff heading 4411 were products alike to or
directly competitive with imported goods.
The investigating authority concluded that the imported goods classified in the eight
subheadings under tariff heading 4411 are products alike to or directly competitive with domestically
manufactured products on the basis of an analysis of descriptions of the imported product and the
domestically manufactured product.
2. Ecuador indicated that the entry into forc e of Economic Complementarity Agreement
(ACE) No. 32 has been an unforeseen development.  This agreement was signed on
20 December 1994, with the tariff cut under he ading 4411 beginning on 1 January 1995 and
culminating on 1 January 1998 with a 100 per cen t preference.  How, therefore, can the entry
into force of ACE No. 32 be considered an "unf oreseen development" justifying the imposition
of a safeguard measure?
Reply
The unforeseen development referred to is the sharp and unexpected increase in imports of
products classified under tariff heading 4411.  Although it was possible to foresee an increase
resulting from the tariff concessions granted by  the entry into force of ACE No.32, signed on
20 December 1994, an increase of such magnitude was not expected.
3. Ecuador indicated that the dollarization of its economy had generated an economic
recovery that had, in turn, led to  an increase in imports of various products.  If this were the
case, increased imports would have been a foreseeable consequence of government policy.  How,
therefore, can the investigating auth ority maintain that the increase in imports is attributable to
"unforeseen developments" – a requirement for the application of safeguards underArticle XIX of the GATT?
Reply
Ecuador maintains that the increase in imports of products classified under tariff heading
4411 is a consequence of unforeseen developments, including the tariff concessions granted to Chile.
4. When questioned about the critical circumstances in which delay would have caused
injury to the domestic industry that it would have been difficult to repair, Ecuador's reply was
not satisfactory, as it referred to events that were a perfectly normal part of the process of
marketing imported products.  It would be hard to classify " the easy  distribution of imported
products in the local market " as a critical circumstance.
Reply
The invocation of critical circumstances which would have caused injury to the domestic
industry that it would have been difficult to repair can be justified by the increasing rate of imports.The application of the provisional safeguard measure is justified in particular by the level of imports
in 2003, the total of which, in the investigation period prior to the adoption of the definitive safeguard,
exceeded the total of imports recorded in 2002, despite the existence of the provisional safeguard
measure.
5. Ecuador indicated that once the provisional safeguard measure had been confirmed, the
domestic industry, i.e. Aglomerados Cotopaxi, would submit, at the request of the investigating
authority, a readjustment plan that would allow it to improve its competitiveness.  Has this planG/SG/Q2/ECU/8
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been submitted?  If not, when will it be submitted?  If the plan has already been submitted,
what does it entail?
Reply
The domestic industry has submitted an adjustment plan and shown that the implementation
of this plan would allow it to improve its competitiveness.  The adjustment plan comprises a series ofadministrative and financial measures, as well as a detailed investment plan that is being assessed by
the competent authority.
6. Ecuador indicated that the countries of th e Andean Community are excluded from the
safeguard measure " although they are included in the investigation ".  In its reply, Ecuador did
not say whether the Andean Community countries exported the product concerned to Ecuador
and therefore contributed to the alleged injury or threat thereof.  Should this be the case, would
excluding these countries from the measure not be arbitrary and contrary to the provisions ofthe WTO Agreement on Safeguards?
Reply
The countries of the Andean Community are excluded from the safeguard measure because
the investigation found no record of any imports from those countries of products classified under
tariff heading 4411.  The General Secretariat of the Andean Community was nevertheless notifiedaccordingly, and decided to exclude these countries from the safeguard measure.
II. CONSIDERATIONS EXPRESSED BY THE ANDEAN COMMUNITY IN ANDEAN
COMMUNITY RESOLUTION No. 705
7. Preambular paragraph 15 of Andean Community Resolution No. 705 states that
"according to the Ecuadorian Government, a request for safeguard measures on all productsunder tariff heading 4411, which comprises eight subheadings, shall be made on the basis of
practical reasons, as it would otherwise be easy to circumvent the measures when importing the
product, particularly in the light of minimal differences in weight in grams per cubic centimetre
that would be impossible to detect at customs".  Under which provision of the WTO Agreement
on Safeguards did Ecuador group together the eight subheadings of tariff heading 4411?  DoesEcuador consider it legitimate to group together subheadings representing products that are
neither alike nor directly competitive?
Reply
Questions regarding considerations expressed by the Andean Community in Resolution
No.705 can only be answered by the General Secr etariat of the Andean Community (the body
responsible for the above-mentioned Resolution).  This reply also applies to questions 8 and 9.
8. Preambular paragraph 23 of Andean Community Resolution No. 705 states that "the
Ecuadorian Government indicated that the avera ge salary within the domestic industry had
increased substantially due to the dollarization of the economy.  It also indicated that this
situation applied to the entire domestic economy, explaining that the 55 per cent increase in
labour costs over the previous four years had o ccurred in response to rea l events affecting the
industry's competitiveness and could be compared to the increased cost of other goods andservices".  Did the investigating authority consid er this salary increase when analysing the loss
of competitiveness of the Ecuadorian product an d its consequent bearing on the alleged injury?
Is the loss of competitiveness suffered by the domestic industry not a foreseeable development
resulting from increased imports of like or directly competitive products and/or a drop inG/SG/Q2/ECU/8
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exports?  Can the foregoing be considered by the investigating authority to constitute
unforeseen developments?
Reply
Idem 7.
9. Preambular paragraph 27 of Andean Community Resolution No.705 states that "in a
communication dated 6 March 2003, the Colombian Government indicated that the Ecuadorian
Government's report contained inconsistencies of a legal and technical nature, which it believed
would lead the Secretary General to consider the imposed measure as inappropriate".  Were the
legal and technical inconsistencies that Colombia referred to amended by the Ecuadorian
investigating authority and was the measure corrected consequentially?
Reply
Idem 7.
III. FORMAL ASPECTS
10. If the investigation began on 5 December 2002, could Ecuador please explain why the
WTO was not notified until 20 February 2003 (G/SG/N/6/ECU/3)?  Similarly, could Ecuador
please explain why the WTO has not yet received official notification of the provisional
safeguard measure, adopted on 8 January 2003?
Reply
The WTO was notified by the investigating authority, through the Permanent Representative
of Ecuador, on 11 December 2002, within the time-limit specified in Article 80 of COMEXI
Resolution No. 052, in force at the time.  The provisional measure, in effect since 8 January 2003, was
notified to the WTO in the same way as the initiation of the investigation, on 9 January 2003.
11. Could Ecuador please submit a copy of Executive Decree No. 3497 of 14 January 2003?
Is this Decree in force?  Has it been notified to the WTO?
Reply
Executive Decree No. 3497, published in the Official Register of Ecuador on
14 January 2003, consolidates the legislation of the Ministry of Foreign Trade, Industrialization,Fisheries and Competitiveness and incorporates th e full text of COMEXI Resolution No. 052, which
was duly notified to the WTO and can be found in  document G/ADP/N/1/ECU/2.  A copy of the
above-mentioned Executive Decree is submitted herewith.
12. Could Ecuador please state whether the report required under Article 3.1 of the WTO
Agreement on Safeguards, setting forth the findings and reasoned conclusions reached on all
pertinent issues of fact and law, has been published?
Reply
The findings and reasoned conclusions reached on pertinent issues of fact and law, which
prompted the adoption of the safeguard measure, can be found in the corresponding Resolution that
was published and notified to all parties concerned.  However, the report submitted to COMEXI for
examination and decision appears in the public file to which the said parties have had access.G/SG/Q2/ECU/8
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13. Is the quantitative restriction imposed by Ecuador equal to or higher than the average
level of imports over the last three years?  Could Ecuador please submit any data regarding the
average level of imports?
Reply
The quantitative restriction imposed by Ecuador is equal to the average level of imports over
the last three years.  Data regarding the average level of imports is submitted herewith.
14. On the basis of which provision of the WTO Safeguards Agreement did the Ecuadorian
investigating authority allocate quotas to impo rters?  Among the Ecuadorian companies that
are able to import, are there any Ecuadorian producers of the product in question or of like
products, or any companies related to such producers?  How will the unused quotas be
reallocated?  Will these quotas be cumulative after 12 months?
Reply
The investigating authority based its allocation of quotas to importers on Article 5.1 of the
Agreement on Safeguards.  Among the Ecuadorian companies that are able to import, there are no
producers of the product in question.  Among the Ecuadorian companies that are able to import, there
may be companies related to producers of the product in question.  Unused quotas can be reallocated.
The quotas are not cumulative.  The investigating authority based its allocation of the set quotaprimarily on Article 13 of the GATT 1994.  Ecuador  also complies with the Agreement on Safeguards
and the GATS by distributing the quota between supplier countries and importing countries.  In no
event does it discriminate between imports on account of their origin, or between importers, whether
domestic or foreign.
15. The COMEXI Resolution that imposes the measure does not indicate the "methodology
used" to determine an alleged threat of se rious injury (as required under Decree No. 3497).
Could Ecuador please provide information on the methodology applied?
Reply
The threat of serious injury was determined on the basis of an analysis of the effect on each of
the variables established in the WTO rules.
16. From what date does Ecuador calculate the period of application of the measure?  When
will the first year be completed?
Reply
The safeguard measure was introduced under COMEXI Resolution No.193, published in
Official Register No.126 on 16 July 2003.  The period of application of the measure began on
28 August 2003, the date on which COMEXI Resolution No. 201 was published in Official Register
No.157.  This Resolution implements the measure with regard to the allocation of the import quotaamong countries and of the import quota shares among importers.  The first year of the measure will
be completed on 27 August 2004.
17. If the measure is extended, does Ecuador intend to apply the same quota administration
method?  Will the list of authorized importers be modified?  How will the quota increase be
allocated?  (Please note that Chile does not consider the individual allocation of quotas toimporters to be a valid mechanism under the provisions of the WTO Agreement on Safeguards).G/SG/Q2/ECU/8
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Reply
During the period of application of the safeguard, Ecuador can assess whether the measure is
achieving its objective.  The period of application is two years and may be reduced if COMEXI so
deems appropriate.  Although it is possible to extend the measure, this would only be done in extreme
circumstances.  At present, an extension is not considered necessary.  In any event, Ecuador will act inaccordance with the Agreement on Safeguards, without adversely affecting importers.
18. Which body is in charge of administering the quota?  Is information regarding the
utilization of the quota publicly available?  (Please note that Chile does not consider the
individual allocation of quotas to importers to be a valid mechanism under the provisions of the
WTO Agreement on Safeguards).
Reply
The body in charge of administering the quota is the Foreign Trade and Investment Council
(COMEXI) and its chosen representative, the Under-Secretariat for Foreign Trade and Integration of
the Ministry of Foreign Trade, Industry, Fisheries and Competitiveness.  The import records of the
Central Bank of Ecuador provide public information on the utilization of the quota.
IV. SUBSTANTIVE ASPECTS
19. To which domestic industry has the safeguard been applied?  Which products are alike
to or directly competitive with the imported product?  (Please provide disaggregated HS code
data).
Reply
The safeguard has been applied at the request of the domestic producers of fibreboard, which
is classified under tariff heading 4411.  Imported products alike to or directly competitive with thoseproduced domestically are imported under subheadings 4411.11.00, 4411.19.00, 4411.21.00,
4411.29.00, 4411.31.00, 4411.39.00, 4411.91.00 and 4411.99.00.
20. Could Ecuador please provide detailed figures for each tariff subheading, regarding the
rate and amount of the increase in imports of the product concerned in absolute and relative
terms, the share of the domestic market taken by increased imports, changes in the level of
sales, production, productivity, capacity utilization, employment, profits and losses, and
employment (Article 4.2(a) of th e WTO Agreement on Safeguards)?
Reply
The requested details can be found in the report submitted to COMEXI for examination and
decision, a copy of which is submitted herewith.
21. COMEXI Resolution No.193 states that an inspection on the industrial premises of
Cotopaxi revealed that "the productivity levels achieved by the company in the past hadapparently been affected by fibreboard imports" .  In accordance with Article 4.1(b) of the
Agreement on Safeguards, "the existence of a thre at of serious injury shall be based on facts
and not merely on allegation, conjecture or remote  possibility" and Article 4.2(b) states that the
investigation should demonstrate, "on the basis of  objective evidence, the existence of the causal
link between increased imports of the product concerned and serious injury or threat thereof".Could Ecuador please define the scope of the term "apparently", as it appears in the
above-mentioned Resolution?G/SG/Q2/ECU/8
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Reply
COMEXI Resolution No.193 is a substantiated and descriptive account of the analysis carried
out by the investigating authority during the investigation.  The description of the inspection on the
industrial premises of Cotopaxi covers the scope of the visit, i.e. it describes what was observed and
analysed during the visit - factors which do not necessarily constitute the basis and conclusion of theinvestigation, but which simply form part of it.  The scope of the term "apparently" is therefore
limited to what was observed and analysed during the inspection on the industrial premises of
Aglomerados Cotopaxi as part of the investigation being carried out.  The findings of the investigation
are based on objective evidence.
22. To what extent is the alleged decrease in the installed capacity of the production line for
veneer wood, the line for drying veneer panels, the wood-sawing line, the finger joint and veneer
assembly line and the finger joint press, a resul t of the fibreboard imports?  Could there be any
other reasons relating to the market for these specific production lines?
Reply
The decrease has occurred as a result of imports, given that one of these production lines is to
generate added value to the Ecuadorian industry's fibreboard while the others generate part of the raw
material used in the production of fibreboard.
It has not been possible to establish any other reasons for the decrease in the installed
capacity.
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