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Latin America Investment News on Viva Tropical

Ecuador’s Uncompetitive Competition Law

Article Summary:

Ecuador’s antitrust legislation became law last week when President Correa declined to veto it, and this seems to reflect the president’s skepticism of what he calls “the myth of competition” rather than any desire to promote it. The law allows the government to set prices in an economy it deems “hyper-monopolised”, and forces banks to divest assets including insurance companies, asset managers and brokerages.


Photo Credit: Economist:

Original Article Text From Economist:

An Uncompetitive Competition Law

WITHIN months of becoming Ecuador’s president in 2007, Rafael Correa (pictured) announced that he was working on antitrust legislation, pointing out that Ecuador was one of the few countries in South America without such a law. This August he introduced a bill that aimed to increase the market share of small and mid-sized companies and “democratise access to the means of production”. René Ramírez, the planning secretary, promised that it would “never affect honest businessmen”. But the initiative, which became law last week when Mr Correa declined to veto it, seems to reflect the president’s skepticism of what he calls “the myth of competition” rather than any desire to promote it.

The law allows the government to set prices in an economy it deems “hyper-monopolised”, and forces banks to divest assets including insurance companies, asset managers and brokerages. It also allows the president to override its requirements via simple executive decree, as long as such a decision “favours the public interest” or represents “affirmative action in favour of the popular and solidarity economy.” Fines handed out by the antitrust watchdog will run from 8-12% of the preceding year’s sales—a figure that runs in line with international standards, but is high enough that it could bankrupt companies altogether and wind up reducing competition if it is not employed judiciously.

Neither the legal system nor companies will have nearly enough time to properly train for the law to be applied safely, says Pablo Dávila, the president of the Industry Chamber of Quito, Ecuador’s capital. “I don’t think this is a declaration of war on the private sector, but I do think that it’s an extremely powerful instrument that, badly used, could become a tool to distort and pressure” individual companies. A small industry specialising in the new competition rules is already sprouting up. There’s no doubt that antitrust enforcement is particularly important in smaller countries. But the law gives so much room to the discretion of the executive branch that businesses will probably wait and see how Mr Correa wields his newfound power before deciding whether to invest.

Link to Original Article:

From Economist

  • Robo

    This new competition law is going to ruin Ecuador’s economy and future.

    I was seriously considering moving my online business to Ecuador due to their tax law that says income you earn outside of Ecuador is tax free.

    There are many other countries that offer a similar tax advantage, but are not hostile toward business like Ecuador has become.

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