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As G-20 battles protectionism, a cautionary tale in Ecuador

The country has put steep tariffs on an array of goods. Seventeen of the world's 20 largest economies have broken recent promises not to take protectionist measures.

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Its policy, which was implemented in January, makes products anywhere from 5 to 20 percent more expensive than they were last year. In supermarkets across the country, labels on items from laundry detergent to toilet paper urge shoppers to "buy the national product."

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President Correa has said that the restrictions, which also include quota restrictions, will keep $1.46 billion circulating in the economy.

Manuel Chiriboga, Ecuador's former free-trade negotiator, says that the policy has received a mix response. Some in the industrial sector say it is a critical safeguard, especially as neighboring countries have devalued their currencies, which Ecuador cannot do. But he sees it as an ominous sign for the health of the economy.

"I think it was an emergency decision.... What it really reveals is the lack of trade policy by the country. Ecuador has increasingly isolated itself," he says, adding that the government has done little to increase foreign exchange. "I don't really criticize the measure, I criticize the reason we got there in the first place."

As a lower-middle-class woman, Espinoza says she sees the value in protecting domestic producers, but shudders at anything that makes her cost of living higher, which she says continues to increase and today is her top concern as a citizen.

"We don't make ends meet each month anymore," says the mother, who works as a cook and whose husband is a taxi driver. "We can't buy what we used to in the grocery store."

Ecuador's experience is not representative of the region. According to a research report by the Council on Hemispheric Affairs in Washington, Latin America has responded in a hodge-podge manner to the crisis.

Peru and Chile, for example, have continued forward with free-trade policies and diversified their trading partners across the globe. Not unlike the policies the US is pursuing, Colombia has increased spending for infrastructure while Brazil has offered a stimulus package, particularly in energy and transportation sectors. Argentina has slapped on licensing restrictions on its imports, and Paraguay responded with tariffs on certain imports in retaliation, the report says, but no country has gone as far as Ecuador.

So far, says Mr. Gresser, the reactions around the globe have been insular, each country dealing with the response in its own way without retaliation being a driving force. "Governments are not working together, but they are not working at odds against each other either," he says.

The meeting Thursday could be an opportunity for unity.

"Trade can be a potent tool in lifting the world from these economic doldrums. In London G-20 leaders will have a unique opportunity to unite in moving from pledges to action and refrain from any further protectionist measure which will render global recovery efforts less effective," said WTO director general Pascal Lamy in a press release.

Earlier this week, British Prime Minister Gordon Brown and Mexican President Felipe Calderón said in a joint statement that they wish to work together to prevent new trade barriers from coming up even as both economies slow: "We recognize that such interventions should promote job creation, protect the interests of taxpayers and savers, and avoid undermining the principles of free trade and open markets."

But accord can unravel quickly. After the US suspended a pilot program last month for Mexican truckers to use US highways, Mexico responded by slapping $2.4 billion of tariffs on some 90 US products in retaliation – in a growing trade dispute that shows how tenuous promises can be.

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