What seemed to be just a procedure for many manufacturing sectors is becoming complicated: the trade agreement signed by Ecuador and China on May 10, 2023, which the National Assembly is analyzing whether to ratify or not, is shaky and has problems getting approval. Ratification of the agreement requires 70 votes of support from 137 parliamentarians, and they obviously do not have the number.

The treaty reached the plenary session of the legislative body after receiving a favorable opinion from the Constitutional Court on November 1, 2023 and a report in favor of the Assembly’s International Relations Commission on January 3, but apparently this was not enough for the agreement to gain the support of the representatives, at least not on at the beginning of the debate, which started on Thursday, January 11, and was adjourned.

Daniel Legarda, former Minister of Production, Foreign Trade, Investments and Fisheries, hopes that next week, when the debate on the agreement continues in the Parliament, the level of discussion will be higher than last Thursday. Government official Guillermo Lasso expressed his regret that the analysis carried out by the plenary session on the agreement with China was more political than technical.

Adoption of a free trade agreement with China is at risk due to a lack of votes, putting the government and its allies in trouble

“It can be understood that there are criteria for and against, especially in some sectors that, although protected, have come to light… the automotive sector, for example. However, it’s another thing to lie and you can’t lie to the people, much less from the position of a national legislator, and people lied on the environmental issue saying that the agreement allows for the implementation of radioactive energy in Ecuador, not that it has nothing to do with it, it’s not power store to do those things,” assured Legarda.

However, he admitted that “it was in the cooperation chapter where alternative energies are discussed.” In any case, Legarda added, lawmakers are confusing the rules of origin where tariff subheadings are considered where some are classified as scrap, a universal classification that all countries have, and that doesn’t mean the deal allows China to scrap you in Ecuador or reduce environmental control, according to the former minister. “On the contrary, the agreement ratifies the environmental standards and promotes that the standards are not reduced due to new investments,” explained Legarda.

The second point is the resolution of investment disputes, which was touched upon by several parliamentarians in the debate. Legarda denied that the agreement has a chapter on investment protection, assuring that it was not discussed in the negotiations and therefore there is no mechanism to resolve investor disputes with the state, international arbitration or international courts. “That doesn’t exist, so that’s also a lie that’s unfortunately directed at the population and it’s worth clarifying.”

He added that the ministers from the previous governments (Guillermo Lasso, Lenín Moreno and Rafael Correa) confirmed that the agreement was positive and that it was negotiated transparently. “Because it is a state policy that goes beyond the government, that goes beyond the president,” said Legarda. On the occasion of calling certain MPs that the negotiations on the agreement were led by former President Laso, the former minister clarified that the negotiations were led by a technical team in which there were experts who also negotiated the agreement with the European Union during the Rafael government and even participated.

“Arguments for non-ratification of the contract in the Parliament are political and invalid”

For Albert Acosta Burne, editor Weekly analysis, Thursday’s debate “was purely political and full of prejudice.” He analyzed that the arguments given by the sectors mentioned as vulnerable are precisely those that are excluded from the agreement in more than 800 subheadings. It makes no sense to justify not signing the agreement when the agreement fully protects, now and in the future, those sectors that are mentioned and which are adequately recognized as vulnerable and are therefore excluded from the agreement.” Acosta described that argument as political and invalid.

Why is it important to ratify the agreement? Acosta pointed out that Chinese exports represented 19.1% of Ecuador’s total exports from January to October 2023, making it Ecuador’s second most important market, right after the United States, which represented 23.7%.

The agreement also implies a complete reduction of customs duties, especially for the export of agricultural products. “In ten years, shrimp and bananas will be reduced to zero, in five years cocoa, roses, pineapples and mangoes, and immediately tuna, bananas, pitahaya, along with many other products; and not only in improving the products we already ship, but also in new products.” There is a lot of potential in many other types of fruits, such as blueberries, grapes, tangerines, apples, papayas, asparagus, avocados, spinach, broccoli, processed and semi-processed, among others.

The trade agreement foresees a gradual reduction of tariffs on Chinese cars until 2038, imported furniture will not be reduced

The agreement also foresees a gradual lowering of tariffs on Chinese cars, which currently enter the country paying between 35% and 40%, but with the entry into force of the agreement with China, they will be reduced to zero with a linear reduction, which means that every year the tariff will fall by 2, 6% until it reaches zero.

If the agreement with China does not enter into force, Acosta said it would be a “terrible blow” to hundreds of thousands of small farmers who would lose preferential access to a market of 1.4 billion consumers.

“After the ratification in the Parliament comes the most difficult phase of the agreement: to use it”

For Eduardo Egas, executive president of the Corporation for the Promotion of Exports and Investments (Corpei), if the agreement with China is ratified, it would be the second most important valid agreement for Ecuador due to its level of maturity, next to that of the European Union. , which entered into force in 2017.

Egas, who was part of the negotiating team that achieved the signing of the agreement with the EU, pointed out that in addition to the benefits for Ecuadorian exports, the entry into force of the agreement with China opens the opportunity to import technology, investments and inputs into Ecuador, which will make the country’s production more competitive. However, the former Minister of Industry warned that apart from applauding the signing of the agreement, if the Parliament ratifies it, it is only the beginning of the opportunity.

China-Ecuador Agreement: Tariff reduction helps entry, but doesn’t give you security due to health requirements imposed by the Chinese market

“From here on comes the most difficult phase: what to do, under which strategy, under which mechanism, with the help of which policies Ecuador will be able to take advantage of this opening of this very important market”, warned the executive president of Corpei.

If the Assembly ratifies the agreement, what is the next step?

Former Minister Legarda believes that the Assembly will eventually ratify the agreement. What would be the next step? He pointed out that the legislature, after ratifying the agreement, will return the contract to the executive so that it can be published in the Official Register. After that, the Ministry of Foreign Affairs must issue cancellation notes and inform China that the internal process in Ecuador has been followed, and China must do the same internally.

“Once these de-notification and accompanying and accompanying notification processes are followed, there are 90 days for the trade agreement to enter into force,” Legarda explained.