Ecuador in fifth year of the trade agreement with the EU, enters new agreement with UK

Published on January 06, 2021

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Last November 11th marked four years since the signing of the Multiparty Trade Agreement (MCA) between Ecuador and the European Union (EU).

It was signed in Brussels before representatives of Colombia and Peru, who were already part of that treaty since June 26, 2012. It was put into effect on January 1, 2017 and is now entering its fifth year.

Javier Latorre, Deputy Vice Minister of Foreign Trade, said that the treaty between Ecuador and the EU was signed after nearly ten years of a negotiation process that had initially been persecuted by commercial blocs, between the Andean Community of Nations (CAN) and the EU; after a lack of consensus on the part of the Andean countries, each carried out a bilateral negotiation.

The signing of the ACM came into effect precisely when the tariff preferences that the EU granted to Ecuador through the Generalized System of Preferences (GSP) scheme ended; therefore, it allowed the access of Ecuadorian products to have predictability in tariff benefits to export to the European market.

“The agreement allowed non-oil exports to have a competitiveness saving of more than $400 million, because this value is the one represented by the tariffs that this sector had to assume without having a current trade agreement,” said Latorre, who recalled that in 2016, the year before the MCA came into force, non-oil exports to the EU reached $2.832 billion.

Regarding exported products, in 2016, the top five represented about 85% of total non-oil exports, these were bananas ($870 million), shrimp ($699million), canned tuna ($472 million), cocoa ($176 million) and flowers ($163 million).

What are the results?

According to figures from the Ministry of Production, Foreign Trade, Investments, Aquaculture and Fisheries, in 2017, which was the first year of validity of the MCA, non-oil exports had an increase of more than $340 million, which meant a growth of 12 %.

To date, according to Latorre, the sustained growth of non-oil exports has been maintained, so that between January and October 2020, despite the COVID-19 pandemic, these have had an increase of 12%.

However, to talk about the benefits of the first year of the agreement, Felipe Ribadeneira, President of the Ecuadorian Federation of Exporters (Fedexpor), said that the first year of the agreement had an even greater impact than expected. He said when looking at the numbers, one must take into account the added the $340 million increase in exports, and the $450 million that Ecuador would have lost due to exports if the treaty was not signed.

“By the end of that year (2017), the agreement allowed the maintenance of exports and an increase of around $810 million,” said Ribadeneira, who added that in 2018 exports increased 3%, maintaining the benefits of the agreement.

He pointed out that for this period (2018), the difference between export earnings for an Ecuador without an agreement compared to Ecuador with an agreement was $1.035 billion and it was the year in which the highest level of non-oil exports was registered, at $3.279 million.

Last year’s exports to the bloc showed a slight decrease, mainly driven by the drop in the bloc’s demand for non-oil products, Ribadeneira explained.

“This dynamic also affected Ecuadorian products, as was the case of bananas and plantains, shrimp, flowers, vegetables, tuna, among others, which, although they decreased, present better export performance than when the country did not have a trade agreement.”

Ribadeneira pointed out that despite the decrease in exports, in the event that the trade agreement had not been signed, the export item would be lower by $977 million for 2019.

He added that the effects of the agreement with the EU have materialized in the generation of more than 22,000 new jobs, with more than 1,120 companies linked to exports, of which 65% correspond to small and medium companies that have adopted the export culture.

Within this framework, Latorre corroborated that as of the entry into force of the agreement, new actors have been incorporated into bilateral trade.

Latoree agrees, saying that in Ecuador, since the agreement went into effect, there are 566 new exporters, and 123 new tariff subheadings for the agricultural sector and 689 subheadings for the industrial sector destined for the European market.

Regarding imports, the Vice Minister pointed out that thru 2020, 60% of the products imported from the EU are not available from Ecuador sources. Among the main products imported are industrialized products, such as raw chemical materials, pharmaceutical products, fertilizers, plastics and manufactures, textile fibers, iron and steel products, machinery and electronic products and some vehicles and parts.

Ecuador and the UK enter new agreement after Brexit

While Ecuador will maintain its MCS with the European Union, it now has a new agreement with the United Kingdom (UK), who left the EU on December 31, 2020.

The UK’s new agreement with Ecuador will maintain trade relations and commitments as they were established before Brexit.

According to Latorre, this trade “new” agreement between the UK and Ecuador, was actually negotiated in May 2018 and approved by the plenary session of the National Assembly on July 10, 2020.

The agreement was also signed by Peru and Colombia and was based on the one signed with the European Union in 2013; it retains the tariff preferences to these South American countries to enter the UK that were in place when it belonged to the EU.

“There will be no impact on commercial exchange, since all products are covered with the same benefits they had when the United Kingdom was part of the EU,” said the Latorre, who added that on July 27, by Decree Executive No. 1110, President Lenín Moreno ratified the agreement on August 20, 2020.

According to figures from the Fedexpor, Ecuador currently exports products such as bananas, canned tuna, shrimp, textile products and flowers to the UK, and in 2019 ranked seventh for non-oil imports into the European Union.

Between January and October of this year, non-oil shipments have increased by 37%, mainly due to the greater demand for canned tuna in the UK.

“No new changes are contemplated, but rather a continuity in the bilateral relationship of both countries, so that trade will continue to enjoy tariff benefits as if it were taking place with the European Union, “confirmed Fedexpor’s Ribadeneira.

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