A long-term treaty between Ecuador and China requires several steps

Government hopes to deepen the bilateral relationship with China, the third non-oil commercial destination for Ecuadorian products, during the visit of the President of the Republic, Guillermo Lasso, to that country this week.

These types of approaches are part of the “open doors to the world” policy promoted by the current president in his desire to pursue trade agreements with at least ten countries in the world.

In this sense, the objective of the president’s visit to China, among other issues, is Expose Ecuador’s interest in establishing a trade roadmap that will later materialize in a treaty.

To reach this last point, several previous steps must be achieved. According to the Ecuadorian Federation of Exporters (Fedexpor), the negotiation process is activated with the definition of the terms of reference where both countries agree on the conditions, scope and matters on which the negotiating tables are established.

Xavier Rosero, Executive Vice President of the Federation, points out that coordination with the Fourth Business Deputy will be essential to consolidate a technical balance that identifies opportunities and potentialities in the exportable offer, as well as the best treatment of possible productive sensitivities that, together, strengthen the country’s negotiating position in the face of at the beginning of a negotiation process.

The possibility of reaching a wide-ranging treaty generates diverse reactions in the country’s productive sector. While for agro-export and aquaculture sectors the possibility of a negotiation is taken positively, other sectors, such as textiles, steel and metalworking, warn of the competitive disadvantages that exist.

The shrimp sector stresses that achieving a trade instrument is necessary to create an environment of predictability. For José Antonio Camposano, president of the National Chamber of Aquaculture (CNA), the agreement will be a good opportunity to serve a market of more than 1,400 million inhabitants.

Shrimp exceeded the barrier of $ 5,000 million exported abroad

China has become the main destination for Ecuadorian crustaceans. In fact, this country alone concentrated 46% of total exports in 2021, which meant revenue of $2,296 million. “The relationship must be closer to improve the channels of dialogue and technical cooperation to continue this process of market maturation,” said the head of the CNA, who added that, currently, this product pays a 2% tariff to enter to China.

Given the importance of China for the sector, Ecuador maintains a Memorandum of Understanding in force, for the application of biosafety protocols in the products that are exported to this market.

In the case of the banana sector, the Asian nation is a potentially important market. The Banana Marketing and Export Association (Acorbanec) records that this country acquired 11 million boxes in all of 2021, that is, 3% of what was exported throughout the year. This product bears a 10% tariff in that country.

Richard Salazar, executive director of the union, points out that China, despite being a producer, continues to buy to supply its local demand. “We are convinced that exports to that destination can be tripled with the benefit of entering without tariffs, reaching 9 or 10%, which is what is currently exported to the United States.”

The risks of a negotiation

Subsidies and competitive disadvantages would hit the steel and textile sector. Unlike the potential that agro-export products could have, manufacturing could have complications. Javier Díaz, president of the Association of Textile Industries of Ecuador (AITE), He explained that textile manufacturers are at a disadvantage compared to China due to the density of textile production that it concentrates.

“Nearly 40% of world textile trade is dominated by China, we would be negotiating with the world’s great textile power,” he says.

In this sense, the head of the AITE says that giving way to a deepening of the commercial relationship “It would end local production and there would be a destruction of at least 130,000 jobs, 70% of which are women.” Díaz assured that the general balance of whether or not it will be positive to reach an agreement should be reviewed, with technical studies.

Guillermo Lasso ratifies the ten countries with which Ecuador seeks to sign trade agreements in the next three years

I agree with this point Ramiro Garzón, president of the Ecuadorian Federation of Metal Industries (Fedimetal), who also assures that in the countries with which China has signed agreements a “de-industrialization” has been generated. “The steel sector cannot compete with China because there is a huge asymmetry, basically, because it is the largest steelmaker in the world and represents more than half of world production,” said the leader.

The representative of the aquaculture union indicates that an intelligent agreement must be negotiated, but without denying the possibility of serving one of the largest markets in the world. “Ecuador, for example, missed a huge opportunity by getting up from the table and not signing with the United States, now the possibility should not be missed.”

The trade relationship with China

China maintains a historically asymmetrical relationship with Ecuador, that is, within the non-oil trade balance there is a deficit. The data from January to November 2021 register exports for $2,848 million, while imports reach $4,699 million.

Shrimp, wood products, animal feed, fresh fish and bananas are among the main items sent to that country. Of this group of products, shrimp is the heaviest.

According to Rosero, the necessary progress of the trade agenda “must converge with the government commitment to specify an internal agenda to improve the conditions of competitiveness for the local production sectors, as well as for the export sectors that can take advantage of access to the Asian market ”. (I)