A Free Trade Agreement (FTA) between Ecuador and China was signed this week. The government as the promoter of the agreement and the sectors that benefited the most from the reduction of tariffs and trade barriers with the Asian giant congratulate it. Like a large part of the Latin American political and economic elites, they perceive the relationship with China mainly because of the opportunities it offers. There can be no fault in that. The Chinese market is already the first destination of Ecuador’s non-oil exports, with a value of 5.706 million dollars in 2022, and it is predicted to increase by at least 20%.

Thus, an agreement between China and Ecuador will be signed in Quito

However, resorting to data on predictable increases in trade flows is not sufficient to make an accurate diagnosis of the potential benefits of a free trade agreement. Certain factors are often overlooked. For example, the fact that Ecuador can import cheaper goods from China – thanks to the reduction in tariffs – does not guarantee that said reduction will be passed on to the price paid by consumers. This is due to the fact that in Latin America the difference is usually pocketed by the middleman, since he operates in monopolistic or oligarchic markets and therefore has no incentive to lower the price.

The agreement with China excludes about 800 highly sensitive products; and includes relief of up to 20 years for sectors of medium sensitivity

There are also nuances in exporting. Shrimp, which became Ecuador’s first export to China, did not require a free trade agreement to force its way into that market, after sales of $3.725 million last year. As for the expectations of the export of bananas, cocoa trees, flowers or agricultural products, and in the second phase of chicken, dairy products or exotic fruits, it is advisable to be cautious. The free trade agreement between Peru and China, which has been in force for 13 years, shows that the trade agreement has not served to properly diversify – as intended – Peru’s export basket to that country.

The fact that the free trade agreement does not contain a requirement of good practice opens the door to excesses.

Quito should consider the Peruvian case. 95% of exports are minerals and fishmeal. Therefore, his claim to expand sales to value-added products is thwarted. Phytosanitary protocols that Beijing requires for every product have penalized its agricultural products’ access to the Chinese market. On the other hand, Ecuador’s and Peru’s free trade agreements with China do not include safeguards that prevent flexibility or non-compliance with environmental or labor provisions. The importance of their inclusion is clear: it shows the will of the signatory countries to develop trade (and investments) within acceptable standards.

They also serve to facilitate the participation and complaints of civil society organizations which, in the end, can lead to improvements. The fact that the free trade agreement does not contain a requirement of good practice opens the door to excesses. Let’s not forget that China’s actions in Ecuador are controversial. Complications at the Coca Codo Sinclair Dam. Loans that brought Quito to the brink of financial collapse. Costs and benefits of the Mirador mine. They are all examples of not being carried away by triumphalism. (OR)