FTA with China, Ecuador’s springboard to reach an agreement with the US

Ecuador prepares a pole vault. Driven by the Free Trade Agreement (FTA) that has just been signed with China, it will try to reach a similar agreement with the United States, its main partner.

“We hope that this is a sign that we are seriously seeking to reach an agreement with that (American) market, which is very relevant to us.”, the Vice Minister of Foreign Trade, Daniel Legarda, told AFP.

President Guillermo Lasso, a former right-wing banker, announced on Tuesday that he had “successfully concluded” the FTA with China, an agreement that will allow the “industries” Ecuadorian “acquire machinery and supplies at lower costs”.

The negotiation with Ecuador’s second trading partner lasted ten months and the United States is in the crosshairs.

Legarda pointed out that the treaty with Beijing will imply an increase of up to 20% of national exports to the Chinese market.

Sales to China grew from US$4.075 million in 2021 to US$5.005 million from January to October 2022, according to the most recent data from the local Central Bank. Purchases increased from 5,092 million to 5,381 million, in the same period.

“Ecuador’s great opportunity is in the world”assured Lasso, who seeks a broader trade opening that includes the United States, Costa Rica, South Korea and Canada.

Pressure on the United States

Lasso started FTA negotiations with China in February 2022, during a visit to Beijing on the occasion of the Winter Olympics. And in December he made an official trip to the United States, a country with which he reached US$7.621 million in exports and US$5.959 million in imports as of October 2022.

“There is a favorable reception but we must be patient”, President Lasso told AFP in Washington last month about an agreement with the United States.

The economist Marcelo Varela questions the FTA with the Asian giant because he considers that “In practice, it is not tied to development policies (of the productive sector), public policies (rather) it is tied to the interests of exporters and importers”.

But “carrying out a quick deal with China will lead to pressure for the United States to sign an agreement“Varela told AFP.

With a growing influence over Latin America, China became Ecuador’s largest financier during the administration of former socialist president Rafael Correa (2007-2017) -a harsh critic of FTAs ​​and Washington. At that time, the debt reached US$ 5,000 million (4% of the current GDP).

In September, the Lasso government managed to extend the payment terms and lower the interest rates of liabilities with two Chinese banks for 3,227 million dollars.

no lineups

For Alberto Acosta Burneo, from the consultant Grupo Spurrier, Ecuador’s position – which has had a trade agreement with the European Union since 2017 – has been “not to align itself directly with any of the powers, but to seek a relationship with all countries.”

“The United States is the main destination of our total exports and China the (largest) destination of our non-oil exports. The two markets are extremely important for Ecuador”, Acosta Burneo told AFP.

Ecuadorian bananas will be one of the great beneficiaries of the FTA with China, at a time when the world export of the fruit lost competitiveness due to the increase in freight prices.

“China had a fairly changeable tariff policy”estimated Acosta Burneo, adding that with the agreement “Those tariffs are eliminated and that variability also ends, which provides a more stable environment for Ecuadorian exports”.

Legarda indicated that the FTA with China also contemplates the protection of some national sectors considered “sensitive” such as footwear, textiles, agriculture and ceramics.

“This process has its difficulties, but it is a process in which the country ends up winning because what trade agreements require is to continue working on competitiveness, to continue specializing”, Acosta Burneo maintained.

The signing of the agreement will take place in four months after processes such as the formalization of the offers, according to Quito.

Source: AFP