Ecuador is to pay royalties to the holders of international pharmaceutical patents, basing the payments on the sale price of locally produced medicines, the Ecuadorian Institute of Intellectual Property, or IEPI, said Wednesday.

Last Friday, Ecuador's president, Rafael Correa, signed a decree that aims to lower prices by allowing local production of medicines still under patent.

The decree grants mandatory licenses for local laboratories to produce patented medicines, but excludes cosmetic products.

"What we are looking for is to propitiate competition to obtain lower prices. The patents won't be revoked or replaced," said the president of the IEPI, Andres Ycaza.

Instead, licenses for local production or importation of generic medicines will be given, he explained.

International royalty payments for mandatory licenses are between 0.5% and 3%, Ycaza told reporters Wednesday. Ecuador, he said, "should be in those ranges."

According Ycaza, the Ecuadorian decision is based on local and international laws, as well as on the Ecuadorian constitution.

Ycaza added that licenses will be granted on a case-by-case basis, and that a license won't take away the pharmaceutical company's right to continue selling its products in Ecuador.

Meanwhile, the Pharmaceutical Industry of Investigation, or IFI, which represents local units of European and U.S. companies, said in a press release they "democratically" accepted the government's decision.

However, the IFI said it regrets not being asked to participate in the process, adding that it would have contributed positively.

Local units of Pfizer Inc. (PFE), Grunenthal, Bayer (BAYN.XE, BAYRY) and Aventis Pharma (500674.BY) are among the foreign pharmaceutical firms operating in the country.

-By Mercedes Alvaro, Dow Jones Newswires; 5939-9728-653; mercedes.alvaro@dowjones.com