Ecuador pursues trade agreement with the European Union; rejects the traditional free trade agreement model

In a visit to France, President Rafael Correa said he believes a long-awaited trade agreement between Ecuador and the Eurpean Union (EU) can be reached in early 2014.

The announcement came after the European Parliament’s Commerce Commission decided not to analyze one-by-one the extension of its preferred trade access for developing nations (the Generalized System of Preferences Plus, GSP+). This applies to ten Latin-American countries, including Ecuador, and as a result, this partial tariff waiver will remain in 2014.

“This is good news, we are excited and grateful for the EU,” said the president.

Currently, 56 percent of Ecuadorian exports to Europe have GSP+ treatment. Most of these products enter with zero tariffs and fewer pay a lower tax than would otherwise apply. Within this latter group is the banana, one of Ecuador’s main export products, whose preferential tariff is EUR€148 per metric ton.

Correa has said on more than one occasion that Ecuador is not interested in a comprehensive Free Trade Agreement (FTA), like those the EU has signed with Colombia and Peru.

In his view, an FTA would be “suicide” for a country like Ecuador that lacks monetary policy. (Ecuador’s economy is based on the U.S. dollar). Further, one of Ecuador’s greatest concerns or complications with these agreements is public spending, because its legislation gives priority to domestic production.

“We trust in trade, but in trade for mutual benefit; bad trade can break a country,” said Correa.

Currently, the European market is the main destination for non-oil exports from Ecuador, representing 29.5 percent of the total, according to the Ecuadorian Exporters Federation (FEDEXPOR).

In 2012, exports to the European Union reached US$2.4 billion, while imports from Europe totaled $2.7 billion. Ecuador mainly supplies Europe with agricultural and fishery products, while it imports manufactured goods and processed petroleum products.

A FEDEXPOR report that analyzed the importance of negotiating an agreement with the European Union said that if Ecuador achieves a trade agreement, imports of domestic products could achieve additional growth estimated at US$327 million during the first three years of its effect.

ECLAC (the Economic Commission for Latin America and the Caribbean), in their study titled “Poverty Impacts of Trade Integration with the European Union: Lessons for Ecuador,” concludes that almost all trade agreements lead to reductions to extreme poverty in rural areas, but sometimes that poverty increases in urban areas.

Francisco Briones, an analyst with IE Inteligencia Estratégica, believes the agreement with the European Union won’t be ready in 2014, elaborating that Ecuador is in the preliminary stage.

“There’s still the need to conform negotiating committees and open dialogue with civil society. Formal negotiations for the agreement with Peru and Colombia took 32 months and nine rounds. Then, regulatory approval, individual review, and the enactment took almost three more years.”

That’s why, says Briones, the European Union isn’t ready to start negotiations from scratch with Ecuador, but from what has already been agreed to with Colombia and Peru. Ecuador, however, prefers to distance itself from these treaties and discuss its own rules.

“The political will of the national government is to sign the agreement with Europe . . . but not at any cost, may the Ecuadorian people see that very clearly,” said Correa. He added that “if we do not agree on certain red lines that can’t be crossed, the agreement won’t be signed.” For now, though, negotiations appear to be on track.

Credit: http://panampost.com; Photo caption: President Rafael Correa