China Signs Free Trade Agreement with ‘Conservative’ Ecuador

The Chinese Commerce Ministry announced Thursday that Ecuador has signed a free trade agreement (FTA) to “create a more favorable, transparent, and stable business environment for enterprises” with China.

The far-left, Venezuelan state-affiliated TeleSur reported on some details of the agreement:

This bilateral deal will allow 50 percent of Ecuador’s exportable supply to be immediately released from tariffs for entry into China. In the course of the next 10 years, 99.6 percent of Ecuadorian products will be completely tax-free.

Among the main Ecuadorian export products are tuna and sardines, which will have immediate tax relief for their entry into China. Ecuadorian roses and cacao will be completely tax-free in five years, while shrimp and bananas will be tax-free in ten years.

To protect local industries from Chinese products, the FTA defines 828 goods as “highly sensitive.” Among them are flat ceramics, wooden boards, textiles, and iron wire.

The Financial Times predicted U.S. policymakers would see the FTA as a “frustrating” development since the U.S. has been trying to contain Beijing’s “growing influence” in Latin America.

China already has FTAs with Peru, Chile, and Costa Rica. The deal with Ecuador is particularly disappointing because President Guillermo Lasso is a “pro-American conservative who had sought closer trade and investment ties with the U.S.” His administration has been sending signals since 2021 that the Biden administration was not responsive to Ecuador’s needs and was not acting seriously to counter China’s bid for influence in Latin America.

Lasso wanted to negotiate an FTA with the United States but got no further than a “fair trade working group” announced in November 2022. 

“The Lasso administration consistently looks to play the US and China off of each other, and there is a strong desire in Washington to support his government, but trade is an area where there are real limits to how far it can go,” Risa Grais-Targow of the Eurasia Group told the Financial Times.

Another problem is that Lasso is facing an impeachment vote, which cleared an important procedural hurdle on Tuesday. Lasso is accused of protecting an embezzlement scheme at Ecuador’s state-owned oil transportation company Flopec. The president’s defenders say the impeachment proceedings against him are illegitimate, illegal, and politically motivated.

One possible outcome of the showdown could be Lasso calling early elections before he can be removed from office, giving him six months of effectively ruling by decree before departing. Ironically, Lasso’s leftist arch-enemy Rafael Correa was the inventor of the “rule by decree” element of this procedure because he wanted to intimidate the legislature out of trying to impeach him when he was president.

Lasso’s approval ratings are in the basement and his office has been virtually paralyzed by his antagonistic relationship with the legislature, leading many in Ecuador to blame him for the deteriorating economy and rising crime wave. This climate of instability, and the sense among all parties that the Biden administration would do little to help, created a perfect opportunity for China to step in.

Lasso said on Thursday he felt “enormous joy” at finalizing the details of a free trade agreement that “will translate into well-being for citizens, development and more income for thousands of families.”

Ecuador’s trade minister Julio Pardo said the “historic” deal, worked out through a year of negotiations, “puts Ecuador on the map of Asia, and makes China the largest supplier of consumer goods, raw materials and capital goods, which will contribute to improving the competitiveness of Ecuadorian industry.”

https://www.globaltimes.cn/page/202305/1290551.shtml

China’s state-run Global Times was euphoric over the FTA with Ecuador, which could conceivably fail to obtain ratification from the Ecuadoran legislature, although the Chinese paper regarded it as a done deal:

“In addition to the convenience of trade, the most important thing is the FTA represents the stability of economic and trade relations between China and Ecuador, which will boost business activities,” a manager surnamed Su at a Guangzhou-based e-commerce company told the Global Times on Thursday.

It is widely believed among Chinese foreign traders that exporting to the US and Europe may be difficult in 2023, and everyone is turning to markets in Southeast Asia, South America and countries involved in the Belt and Road Initiative (BRI), said Su.

“We have been making inroads in Latin American market. At the just-ended Canton Fair, we contacted some buyers from Latin American countries. Now we are processing the orders,” Su said, before boarding a flight to Chile.

The Chinese trade ministry saluted Ecuador as an “important partner” in the Belt and Road Initiative (BRI), China’s massive international infrastructure program – and, to its critics, a debt-trap colonialism scheme by which Beijing gets developing nations hooked on unsustainable debt.

Ecuador’s BRI hydropower plant was cited by the Wall Street Journal (WSJ) in January as evidence that “China’s global mega-projects are falling apart.” The plant was Ecuador’s biggest-ever infrastructure project, personally dedicated by Chinese dictator Xi Jinping in 2016, but it turned into a $2.7 billion disaster when thousands of cracks were discovered in the dam. International anti-corruption groups also criticized the lack of transparency in China’s funding for the project.

The WSJ noted that Chinese companies often include promises of easy loan money from Chinese banks in their pitches to local officials, an attractive offer in struggling economies like Ecuador’s.

“Critics say the relatively easy availability of Chinese loans for Chinese construction can lead to inflated project costs because there is less pressure on governments to minimize expenses,” the article noted.

BRI spending in Ecuador surged under left-wing President Correa, to the tune of about $18 billion in loans from Chinese banks. Correa’s critics said the opaque financing and no-bid nature of these projects led to “shoddy construction, high costs, and graft.” 

Some of the Chinese-financed projects were ridiculous boondoggles, like $200 million Ecuador borrowed to build a “tech hub” city in the Andes that was utterly abandoned, leaving a $6.3 million supercomputer to rust away in a forgotten field.