Ecuador moves one step closer to a trade agreement with the United States

Published on December 16, 2020

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Last Tuesday, Ecuador and the United States signed a first-phase trade agreement in Quito. The government emphasized that this is the first firm step towards the achievement of a definitive trade agreement between both nations.

This first phase of the agreement was the result of three meetings the Council for Trade and Investment (TIC), had in the first week of November in Washington, DC.

In applauding the movement forward with the US, President Lenín Moreno said that commercial relations had been paralyzed for 9 years by the previous government, a fact that he considered wrong.

Felipe Ribadeneira, President of the Ecuadorian Federation of  Exporters (Fedexpor), said that despite the fact that both nations share common realities and interests, fifteen years ago Ecuador was left out of the negotiation of a trade agreement that allowed the import of products of Andean and Central Americans competitors, and that displaced national exports due to the preferential conditions of access that the other countries achieved by entering into a trade agreement with the largest global economy.

“That erratic and unpragmatic decision was a setback for the country, blocking the participation of our exports in that market. It increased the difficulty of attracting significant investment flows from the United States, that would have allowed us to expand the capacity of our productive sectors,” lamented the leader

Regarding this first phase of the agreement, Moreno said that, “Without a doubt, this first step opens the way to far greater goals, much broader, much stronger and much more permanent agreements,” he said.

The Minister of Commerce, Iván Ontaneda, pointed out that 82% of the companies that currently sell to the US are micro and small companies, that correspond to the Popular and Solidarity Economy. He added that the bilateral relationship is now solidifying.

Robert Lighthizer, representative of the United States Department of Commerce, stated that this agreement is an addition to the investment agreement of both countries that was signed in 1990.

The North American official stressed that the export of products from his country, such as meat and soy, have increased and from Ecuador, he said that the US has increased imports of such Ecuadorian products as bananas, plantains and fish. He also said that he was pleased that Ecuador roses were included in the Generalized System of Preferences (GSP).

What’s next is the Trade discussion

The Ministry of Foreign Trade reported that the phase 1 agreement signed last week has four chapters:

Facilities for international trade– This section is intended to eliminate the aspects that hinder the commercial exchange between both countries. The important take away from this section is that it seeks to simplify customs processes and reduce paperwork.

According to the World Trade Organization, promoting trade facilitation provides greater competitiveness to the productive and export sectors, since it allows a reduction in the cost structure of 15%; while it contributes to the potential increase of exported products by 20%.

Good Regulatory Practices” – The second chapter is focused on promoting transparency in the issuance of customs regulations and the regulation of environmental and technical operations, or any other measure that has an influence on production and trade.

It will establish the essential legal security parameters to attract, and maintain, investment from both countries.

Benefits for MSMEs(small and medium-sized companies) – This section is related to a new line of cooperation from the United States, with financing and training, to strengthen the link between MSMEs and the tools of digital commerce. It is aimed at the sector obtaining negotiation facilities based on the reduction and simplification of customs processes to enhance commercial exchange.

This chapter aims, Ontaneda said, to establish areas of cooperation, maintain dynamism and improve competitiveness. “They (MSMEs) will benefit from simplifications in customs processes and reduction of paperwork,” said Ontaneda.

Moreno indicated that there are 1,700 exporting companies and with this agreement, more will be created.

Fight against corruption in international trade – This fourth chapter of the agreement is related to “the guarantee of a fair, safe and true exchange.” It will facilitate cooperation to strengthen and automate the control and surveillance mechanisms in foreign trade processes, with the public and private entities involved in these processes.

Moreno maintained that the plague of corruption in Ecuador has caused great damage. “Corruption discourages investment, ruins companies and steals resources.”

Sensitive issues in a trade agreement such as access to markets or agricultural products are not part of this Phase 1 agreement. Ontaneda said the agreement is “short, with few matters, which will not deal with sensitive issues such as agriculture.”

The Minister added that because it is a short agreement, it does not require passage by the legislatures of both countries. Unlike a trade agreement, this preliminary agreement will serve as a reference framework for future negotiations with the United States.

According to the Government, the United States is Ecuador’s main trading partner and the main destination for non-oil exports. From January to September, exports to the country represented $2.415 billion, while importing reached $1.371 billion in US products, translating to a $1.044 billion positive trade balance.

Data from Fedexpor reveals that the main Ecuadorian products that arrived in the United States from January to September of this year were: shrimp ($575 million), bananas ($492 million), flowers ($258 million), fresh fish ($164 million) and cocoa ($124 million).

US could open access to up to 350 new Ecuadorian products

Ecuador’s productive sectors have identified increases in export volumes and access to new products in the framework of this potential trade agreement with the United States.

According to a study made by Fedexpor, the Ecuadorian-American Chamber of Commerce (AMCHAM) and the Quito Chamber of Commerce (CCQ), there are 115 products that could increase their presence in the market, among them: shrimp, tilapia fillets, canned fish or sardines; bananas and plantains, canned palm hearts, cocoa paste, mangoes, sanitary ware, wooden boards, electric cables and stockings for women.

According to the analysis of the potential supply of Ecuador, US consumers demand larger quantities, and these products have a comparative advantage over direct competitors.

As of now, 350 new products in total have been identified as gaining increased access to the American market including: frozen crab meat, fillets of different species of fish, avocado and derivatives, cheese and dairy derivatives, sausages and vegan preparations, mixes of fruit concentrates, plastic and metal furniture, garments of various types and leather footwear.

After the signing of the first phase agreement with the United States,  Ribadeneira said that they will be vigilant that what is signed is fulfilled. He added that there are sensitive issues, especially in agriculture with support prices and investments.

“They did us a disservice with the Montecristi Constitution establishing article 422, where the issue of international arbitration is greatly limited, and it is something that the Constitutional Court has not decided so far (…). It is an enormous limitation for the arrival of investments,” Ribadeneira said.

Daniel Legarda, Vice Minister of Commerce, explained that to enter the United States there are currently tariffs that range from 2% to 35% (in the case of canned tuna).

He estimated that Ecuador is paying the North American nation between $75 million and $90 million in tariffs each year.

Ontaneda said that they will continue working on technical tables that have been developed in the last year. In March or April 2021, a fourth meeting of the Trade and Investment Council will be held. “We will discuss the roadmap that allows incorporating the new chapters that will correspond to the next Government in a responsible manner to continue in this line,” he added.

Ecuador hires US firm for $900,000 to lobby in favor of trade agreement

In a related issue, the Ministry of Production, Foreign Trade and Fisheries, announced that it has hired the US firm Arnold & Porter Kaye Scholer LLP to represent it as a lobbyist in favor of a trade agreement with the US. The firm will be paid almost $900,000, which could increase with additional expenses.

The agreement document between the Ministry and Arnold & Porter Kaye Scholerindicates that the payment will be made in three parts: $150,300 within fifteen days after the first report, $600,000 within fifteen days after the mid-term report, and $149,700 after the final report.The contract will last thru May 31, 2021, the same month that the Moreno’s government ends.

Arnold & Porter Kaye Scholer made it clear that it cannot make promises or give guarantees. But either way, it will expect to be paid.

“If the matter does not advance or does not reach the desired conclusion for any reason, the Republic (Ecuador) remains directly responsible for all costs and expenses actually invoiced by the firm (Arnold & Porter).”

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