Ecuador’s proposed FTA with China generates opportunities and concerns

The revised financial cooperation could be accompanied by closer trade cooperation. The memorandum of understanding to start negotiating a free trade agreement, which was signed in Beijing, could lead to a formal pact as early as October, to be signed in the Ecuadorian city of Guayaquil, Lasso said.

The deal could boost sales of agricultural products from Ecuador to China, but also open up competition to vulnerable local manufacturers already reeling from the pandemic. So, is the South American country ready for an FTA with China?

Complex negotiations

According to Gustavo Cáceres, president of the Ecuadorian-Chinese Chamber of Commerce (CCECH), the signing of a possible FTA involves hard and complex work, in order to examine the “different conditions, problems or opportunities that a trade agreement could have “.

Cáceres told Diálogo Chino that a trade agreement with China is essential for agricultural exports to take off. However, he says such a treaty would need to be thoroughly analyzed and “socialized” – to understand and accept its wider socio-cultural consequences – in order to protect other productive sectors that may face stiff competition from their Chinese counterparts.

“There may be sectors that could have setbacks and we can analyze what measures could be taken to protect or compensate for these other sectors over time,” Cáceres said, adding that 10 to 20 year tax breaks for vulnerable businesses could be a solution. He also suggested the possibility of designating certain industries as “untouchable”, with protectionist measures to shield them from foreign competition.

Some industries, such as textiles and footwear, may need additional protection and Lasso assured that if an FTA is signed, trade liberalization will be gradual, to give local producers a chance to increase their capacity competitive as the market opens up. “We will definitely protect [these sectors],” he said.

An ambitious project

The negotiation of a possible FTA with China also highlights several pressing tasks for the government, according to Felipe Rivadeneira, head of the Ecuadorian Federation of Exporters (Fedexpor). In particular, it must develop and implement a national export plan, he said.

“Let’s remember that trade agreements are not only about securing a market, but also about receiving investment and transferring technology, which is the other interesting part. Logistics must be improved. And finally work [must be done] on a competitiveness agenda, that is, to improve productivity,” Rivadeneira said.

Shrimp stands out as a star product in Ecuador’s non-oil export basket, and is perhaps the industry where hopes for increased sales through the FTA are highest. China remains the main destination, buying 43% of Ecuador’s overseas shellfish sales in 2021, a trade worth $2.3 billion, according to Fedexpor.

2 billion US dollars

The value of Ecuador’s shrimp exports to China in 2021, according to Fedexpor

“The relationship must be strengthened to improve the channels of dialogue and technical cooperation in order to continue the process of market maturation,” José Antonio Camposano, president of the National Aquaculture Chamber (CNA), told El Universo.

Rivadeneira said: “We have been saying for seven years that this market must be secure. For better access… with clear rules, no time limit. This helps to increase the flow of investment.

In 2021, Ecuador exported various products to the Chinese market, with agricultural products and fish accounting for 85% of exports, according to data from Fedexpor and Ecuador’s central bank. Sales of timber and manufactured products to China were US$128 million; balsa wood, used for wind turbine blades, is largely responsible for the numbers. Exports of bananas and plantains amounted to $104 million, animal feed $68 million, and fresh fish (excluding shrimp) $13 million. These figures are encouraging for Ecuadorian entrepreneurs, in the hope that access to the Chinese market may soon open up further.

Hopes for an agricultural boom

Producers of pitahaya, a dragon fruit, in particular hope that the volume of shipments to China and other countries will increase. Reinaldo Armijos, director of Compañía Anónima Escuela Esinnper, a producer and exporter of pitahaya, believes that they could achieve higher figures if they had more government support in the production phase and in promoting the product abroad. foreigner.

“Normally between governments you can get a list of formal buyers, but [at present] there is no such thing,” Armijos told Diálogo Chino. “As producers, we have to go get them. We went to sell in Canada and the United States. We sell to Spain, but there is no such support. The company, which has 46 hectares of fruit plantations along the coast, highlands and eastern Ecuador, currently ships two to three tonnes of product overseas every week.

Remember that trade agreements involve not only securing a market, but also receiving investments and technology transfers

Armijos sees the future trade deal as positive, but also believes that the government should facilitate access to subsidized loans (loans with interest rates below market rates) from state banks to improve technology, thereby enhancing competitiveness of their fruits and other Ecuadorian products.

Just like pitahaya, the FTA could provide more opportunities for banana sales, says Franklin Torres, president of the National Federation of Banana Growers of Ecuador (FENABE). He believes the trade deal would level the playing field between Ecuadorian and Asian exporters.

“This would facilitate both the entry of our products, without the tax currently paid on Ecuadorian bananas, which corresponds to 10% of the sale value, and the export of Chinese products that we need here. For example, it would benefit us from the entry of fertilizers at lower prices than we currently receive. The same with machines,” Torres said..

Shoe Hazards

Lidia Villavicencio, president of the National Footwear Chamber of Ecuador (CALTU), told Diálogo Chino that the organization will closely analyze the situation of the sector and the potential impacts of an FTA with China.

Expectations and worries in this sector – on which 118,000 jobs directly depend, according to Villavicencio – center on fears of not being able to compete with the prices of Chinese products, as well as the overall health of the industry following its difficulties during the pandemic. For this reason, Villavicencio believes that tariff reductions should be a protective measure.

“We have reduced production and job creation. The Covid-19 has been the hardest blow we have suffered. Not selling for two years means not producing. Until 2019 we had 5,400 shoe manufacturers, today we have around 3,600,” Villavicencio laments..

Production revival policies

As the Ecuadorian government seeks better conditions to market its products abroad, it is also trying to improve production chains in sectors that could benefit from the increased demand for inputs. Agriculture is one such industry.

Last October, Agriculture Minister Pedro Álava told an Ecuadorian news program that the government was looking to improve farmers’ practices.

“I work hard on related projects. A farmer with five hectares will never be eligible for credit for a tractor, but if I gather 50 farmers with 10 hectares [each]they will be entitled to credit for tractors, equipment, irrigation systems and more,” the minister said.

Diálogo Chino requested an interview with the Ministry of Agriculture to discuss the government’s plans for agriculture, but the ministry did not respond at press time.

The trade deal with China could also bring new money and investment in telecommunications, car assembly lines and pharmaceuticals. Lasso identified them in his recent economic plan, which is part of the reforms announced in December that aim to reactivate the economy.

Among the measures already implemented this year is the gradual reduction of 1% of the tax on the outflow of foreign currency, from 5% to 4%. He considered the initial levy, created under the government of his predecessor Rafael Correa, as “a barrier to entry for investment”.

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