As Lasso heads to China, the U.S. should act now to enact trade agreement with Ecuador

By Ryan Berg and Daniel Runde

Ecuadorian President Guillermo Lasso is en route to China where he will meet with President Xi Jinping February 3 to discuss a new debt repayment schedule, address environmental sustainability and perhaps most importantly, propose the start of negotiations on a bilateral trade deal between Ecuador and China. 

While Ecuador would prefer to prioritize negotiating a trade agreement with the U.S., the imperatives of economic growth, post-Covid rebuilding and generating employment mean Lasso must take help from wherever it comes, and China’s burgeoning role in Latin America means countries in the Western Hemisphere, and Ecuador specifically, have options.

The U.S. already maintains trade agreements with the other countries of the Pacific Rim. However, Ecuador has not been given proper consideration in terms of a trade agreement with the United States, mostly because of its anti-American stance under former president Rafael Correa. However, its bountiful resources — including petroleum, fish, bananas, copper, gold and silver — and proximity to the U.S. are attractive to the U.S. —  as well as China — for obvious reasons. 

Many claim that debt arrangements made by former president Rafael Correa with China have hamstrung the Ecuadorian economy.

Lasso appears pragmatic and determined. The Ecuadorian president has turned to private investment and expanded trade from wherever he can get it to bolster the nation’s economy. He has fortified trade ties with a multitude of organizations. For instance, Lasso seeks to have Ecuador join the Pacific Alliance, and was present at a recent signing of a trade deal between the organization and Singapore.

However, Ecuador’s debt is crippling, with nearly $5 billion obligated to China. The debt incurred during the Correa administration has hamstrung Ecuador’s government, as a large amount of public money must be directed toward an aggressive debt repayment schedule. Although he left office in 2017, the ghosts of Correa’s bad deals continue to plague Ecuador and its attempt to rebuild.

In Latin America, Ecuador has been the archetypal case for deficits in lending transparency and integrity. China is notorious for transparency issues in lending and for the predatory conditions of some of its loan repayment schedules. Lasso is trying to restructure and extend the debt payments, particularly to untie crude oil from the arrearage. If Ecuador can sell more of its oil on the spot market, as opposed to in-kind debt repayments on its 17 Chinese loans, it can increase its public revenue for post-Covid rebuilding.

The U.S. has an important role to play in these matters. Ecuador and the U.S. have a shared interest in strengthening democratic and inclusive institutions, promoting sustainable economic development, as well as reinforcing anti-corruption efforts. Indeed, Lasso’s leadership is a breath of fresh air after years of Correa’s anti-American, autocratic government. Simply put, for the U.S., Ecuador is the missing piece in the Andean region in terms of trade.

Further, the Biden administration should push for the passage of the bipartisan U.S.-Ecuador Partnership Act of 2022. The legislative framework was agreed upon in the Senate in April of last year, more than a month before Lasso was elected to office. This legislation would encourage the development of a strategy for inclusive, sustainable economic development in the region. It could be strengthened further if the Biden administration pushed to attach some funding to the legislation as a sign of U.S. commitment.

The United States should also look to actively finance projects in Ecuador as an essential component of competing with Chinese state-owned firms. In the past, the U.S. Development Finance Corporation has elevated the threshold for lending to Ecuador in order to fund essential sectors such as renewable energy and purchase power agreements. 

More specifically, with U.S. financial support, Ecuador will be more likely to decline offers made by Chinese firms, which so far have been the only ones showing interest in Ecuador’s infrastructure and resources.

Lastly, with U.S. assistance, Ecuador made an important commitment to exclude Huawei from its 5G networks, and the U.S. must not renege on this agreement now, especially given the critical nature of telecommunications to great power rivalry in Latin America.

If Ecuador negotiates a trade agreement with China, this could shut out important U.S. companies from certain industries in Ecuador’s market. Conversely, the short-, medium-, and long-term benefits of trade relations with the United States will not only strengthen both nations’ economic growth, but will also develop a secure, holistic platform for promoting shared democratic values. There are serious first-mover advantages for the U.S. if it can summon the political will to beat China to the negotiating table with Ecuador.

Lasso’s meeting with Xi should be a wake-up call for the Biden administration. Lasso is a pragmatic leader, so Ecuador will not wait for the U.S. to make up its mind. It is now up to the U.S. to develop a regional trade and development agenda that meets Ecuador’s needs and competes with China. The country is sending a strong message. Will the U.S. answer?
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Ryan C. Berg is senior fellow in the Americas Program at the Center for Strategic & International Studies (CSIS).  

Daniel F. Runde is a senior vice president and William A. Schreyer chair in Global Analysis at CSIS. He previously worked for the U.S. Agency for International Development, the World Bank Group, and in investment banking, with experience in Africa, Asia, Europe, Latin America and the Middle East.