“In the history of Ecuador, there is no trade agreement that was rejected by the Assembly. We expect the same with the agreement with China’

Ecuador and China finalized the signing of a trade agreement on Wednesday, May 10, after ten months of negotiations, which began in February 2022 with an official meeting in Beijing between President Guillermo Lasso and Xi Jinping.

The Ecuadorian body responsible for signing the agreement was Julio José Prado, Minister of Production, Foreign Trade, Investments and Fisheries. The official spoke to EL UNIVERSO a few hours before the contract was signed. He explained why investment issues or other aspects were not included. He spoke about the action expected from the National Assembly, in the midst of the trial of the president.

Why did the business focus exclusively on goods?

Out of pragmatism, we defined, more on the side of Ecuador than on the side of China, that this is what we are most interested in in the short term. We will be able to improve trade agreements in the future. But based on the experience of Chile, Costa Rica and Peru, who negotiated that trade agreement, we decided to do it quickly and focus on market access. Investments, services, public procurement can be interesting, but we know that there were several irritating (issues) involved that did not allow us to move as quickly as possible.

After signing the agreement, legal steps remain for it to enter into force. The estimated time to implement these steps could depend on what, perhaps the political climate in the country?

On Wednesday, the official signing took place, we adjusted the legal texts and other things, and it goes to the Constitutional Court. It would take us three weeks to a month at the most. The court has about a month to give its opinion, and then it goes to the National Assembly, to the Commission for International Relations. It will already be the new Commission for International Relations. We hope that this procedure in the Assembly will last as long as a trade agreement, such as the one concluded with Chile, the European Union, England, for example, took an average of six to eight months to be adopted in the Assembly and ratified. There is no trade agreement in Ecuador’s history that has been rejected by the Assembly. So we expect exactly the same thing to happen. They were well-agreed, well-executed and appropriate socialization with the Assembly was carried out.

Is it expected that the agreement will already be in force in 2024?

It should take until the end of this year, maximum the first months of 2024, for the Assembly to ratify it and immediately enter the Official Register. By the first months of 2024, we should begin to feel the first direct effects of the trade agreement.

From the conversation with the Assembly, are there any predispositions to move forward with agility?

Yes, I have been on four committees: economic development, economic regime, food sovereignty and international relations, several times, presenting all the results of trade agreements, how we negotiated and so on. Of course, they (parliamentarians) did not have a complete detail of the text. As soon as it is signed, we will send it to the Assembly so that they can examine it in detail. The conversations we had with them were very good. Even the benches associated with the Civil Revolution openly and publicly congratulated the work done in the negotiations. So I hope the same will translate into votes in favor of trade agreements.

Is it safe to say that this thread might not be affected by what happens with the recall?

I think so. Trade agreements are supranational, they refer to state obligations, not government obligations. These are long-term contracts. Here you have to see who benefits, what is the amount of employment, exports that will be realized. And when the Assembly examines it in detail, as we have already presented, I am sure that there will be votes.

Which Ecuadorian products will be able to enter China?

For example, traditional products that enter with current tax benefits: tuna, sardines, plantain. They go from 5% to 0% and from 12 to 0%. With zero to five-year tax breaks, cocoa and roses go from 8 and 10 percent to 0 percent. Tax credits of 0% for ten years are shrimps, bananas, flowers. Other products such as pitahaya, blueberries and quinoa have a tariff of 20 or 30%, immediately going to 0%. Pineapples and mangoes go to 0% in five years. This is just one example, as 50% of Ecuador’s export production will immediately enter China with a 0% tariff. The rest will have a discount that will go from zero to 10 years, that is the maximum discount period that will be given, for example, for shrimp and bananas, which are products that have been sensitive for China.

Products that are not currently entering China quickly and could do so with a trade agreement?

We have products that are not yet exported, but have great potential in that market: frozen beef, pork, frozen poultry, milk, whey, yogurt, etc.

What does the Government offer to strengthen exporters, regardless of the regulations that must pass the Assembly?

Strengthening the work of commercial offices abroad. We have 24 offices that before, because there were no trade agreements, we did not have the tools to promote exports. Now these commercial offices will have a lot of work and budget to be able to promote these products abroad. We have projects that already exist, called La Ruta del Exportador, which we promote through ProEcuador.

But in terms of tariffs, capital goods, inputs, raw materials, what is offered?

They arise from trade agreements. Imported products (from China), with a current tariff of 0%, will enter (Ecuador) in 4677 tariff subheadings. Seeds, fertilizers, agrochemicals, tractors, medical and veterinary supplies, medicines, hydraulic pumps, mechanical shovels etc. will come for the industry. This will reduce the production costs of the (local) industry. And on the side of those who are worried because they will not be able to compete with China, in the manufacturing sector, there is very good news because we have agreed through the negotiation room which products we could not open up to. public Chinese market These are very sensitive products and there are 828 tariff items, the highest level of exclusion that Ecuador has ever had, in industry, textiles, automotive, footwear, metalworking, ceramics.

The auto industry has expressed concern about the arrival of Chinese vehicles

In the case of the automotive sector, these items: tires, auto parts, windshields, anything made in Ecuador and radiators are not included. What’s included: Cars. In the case of cars, we proposed, and this was also an agreement with the Ecuadorian automotive sector, that we would give ourselves a period of tax relief. The term for Chinese vehicles will be 15 years. In other words, from the tariff they have today, which is higher than 30%, every year a point or a point and a half will be reduced, until it reaches 0%. This will give the industry time to do what it needs to do to improve its internal capabilities.

What are your expectations regarding the flow of imports and exports?

China is our main non-oil partner. In 2022, we sold more to China. For the first time, we have a trade surplus with China. We hope that this trade agreement will allow us to export much more than we import. We believe that between now and 2030, exports to China will exceed $10,000 million – currently $5,600 million. Our expectations are that in the next seven years we could possibly double our exports. Studies we’ve done say at least $3 billion to $4 billion could result from the trade agreement alone. Imports are growing more slowly, but they will grow. We believe that these will primarily be imports focused on the subject that the industry requires the most. 77% of what we import from China are raw materials, inputs and capital goods.

What collateral effect would shipping have if more ships are predicted to enter the ports?

Completely. If we expect the number of exports to China to double in seven years, and imports to grow as well, well, we have to think about several things: how to improve logistics, how to expand ports, how to attract more investment to those ports, how do we improve the customs system. From here we have to think in five, ten, fifteen years, how we will maintain this huge trade that we will have, not only with China. For that, this year we created a logistics cluster that will be in charge – with the public and private sector and the academic community – of thinking about the logistics of the future.