General

On May 11, 2023, China and Ecuador officially signed a bilateral free trade agreement. Ecuador has become China's 27th free trade partner and China's fourth free trade partner in Latin America after Chile, Peru, and Costa Rica. The China Ecuador Free Trade Agreement will create a better business environment for enterprises in both countries, promote significant growth in bilateral trade, promote diversification of export products, further tap into the potential of trade and investment cooperation, and promote the healthy development of bilateral economic and trade relations.

Ecuador is located in the northwest of South America, adjacent to the Pacific Ocean to the west. It has abundant crude oil reserves and superior development conditions for cultivation, aquaculture, and other aspects. Its economy is mainly composed of petroleum, fishing, and agriculture, with a relatively simple industrial structure. Petroleum products are the largest category of export commodities in Ecuador, accounting for over 30% of its total export volume. According to United Nations merchandise trade statistics, Ecuador was the world's largest exporter of bananas and the second largest exporter of shrimp and flowers in 2021, with exports of 3.39 billion US dollars (accounting for 12.7% of its total exports), 5.09 billion US dollars (19.1%), and 650 million US dollars (2.4%), respectively.

According to the statistics of the Ecuadorian Central Bank, the total foreign trade volume of Ecuador in 2022 was 62.98 billion US dollars, of which 32.66 billion US dollars were exported and 30.32 billion US dollars were imported. The top five trading partners of Ecuador are the United States (accounting for 25.4% of Ecuador's foreign trade volume), China (18.1%), Panama (12.6%), the European Union (11.3%), and Colombia (3.5%). Ecuador mainly exports raw materials such as crude oil, shrimp, bananas, canned fish, cocoa, flowers, and mainly imports industrial manufactured products such as petroleum products, mechanical and electrical products, automobiles, and pharmaceuticals.

Good bilateral economic and trade cooperation

China and Ecuador established a comprehensive strategic partnership in 2016 and signed a memorandum of understanding to jointly promote the construction of the "the Belt and Road" in 2018. According to the United Nations Commodity Trade Statistics Database, in 2022, the bilateral trade volume between China and Ecuador reached 13.09 billion US dollars, a year-on-year increase of 19.7%, with a growth rate exceeding double digits for two consecutive years. According to Chinese customs data, from January to April 2023, the total bilateral trade between China and Ecuador reached 4.43 billion US dollars, a year-on-year increase of 13.4%, including exports of 1.89 billion US dollars, a year-on-year increase of 9.7%, and imports of 2.54 billion US dollars, a year-on-year increase of 16.4%. According to customs data, China has now become Ecuador's second largest trading partner after the United States, and Ecuador is China's sixth largest source of imports in the Latin American region.

China's main exports to Ecuador include automobiles and components, mechanical appliances, electrical equipment, steel products, plastic products, toy decorations, chemical products, mineral fuels, furniture, glass products, and rubber products. The main commodities imported by China from Ecuador include shrimp, crude oil, copper and copper products, bananas, wood, fish meal, cocoa, leather and its products, and flowers. Among them, shrimp is the largest imported product. According to customs data, the import volume in 2022 reached 3.54 billion US dollars, a year-on-year increase of 63.1%, accounting for about half of Ecuador's global shrimp exports that year.

Abundant achievements in investment cooperation

According to statistics from the Ecuadorian Central Bank, in 2020, China was the fifth largest source of foreign direct investment in Ecuador. According to the 2021 Statistical Bulletin of China's Foreign Direct Investment, the flow of China's direct investment in Ecuador in 2021 was 61.37 million US dollars. As of the end of 2021, the stock of direct investment in Ecuador was approximately 470 million US dollars.

China's investment and cooperation in the infrastructure and energy sectors of Ecuador have yielded fruitful results. According to customs data, in recent years, Chinese companies such as China Communications Corporation, China Power Construction Corporation, and China Energy Construction Corporation have participated in infrastructure projects such as power, roads, and housing in Ecuador. Multiple Chinese enterprises have participated in the investment and operation of mineral resources projects such as oil, copper, and gold in Ecuador. Large investment projects include the joint venture oil block development project between PetroChina and Sinopec, as well as the Mirador copper mine project invested by China Railway Construction Tongguan Investment Co., Ltd., with Chinese shareholders holding 100% of the shares. In the field of green energy, Chinese enterprises have implemented a number of hydropower and wind power projects in Ecuador, making positive contributions to the development and utilization of green Energy development, while also driving the export of relevant power equipment to Ecuador. In 2021, the Ecuadorian government launched the "2021-2025 National Development Plan", which involves infrastructure construction and development in various fields such as housing, roads, communication, healthcare, education, etc. However, the overall results are limited, and there are not many landing projects. There is still huge potential for investment and cooperation in infrastructure between China and Ecuador.

In addition, China and Ecuador actively promote production capacity cooperation in industries such as automobiles and telecommunications. More than 40 Chinese independent brand cars, including Chery, Jianghuai, Xinyuan, Dongfeng, Jietu, and Great Wall, are sold in Ecuador, occupying the market with reasonable prices, excellent quality, and high safety. Customs data shows that in 2022, China will continue to maintain its position as the largest source of imported cars in Ecuador. Telecommunication enterprises such as Huawei and ZTE have become important equipment suppliers in Ecuador's communication market, and the share of Huawei and List of Xiaomi products mobile phones in Ecuador's mobile phone market is also rising.

Cooperation potential is expected to increase

  The China Ecuador Free Trade Agreement was launched in February 2022 and announced its end in February 2023, respectively following their respective domestic procedures. On May 11, 2023, the China Ecuador Free Trade Agreement was officially signed. Afterwards, both parties will fulfill their respective domestic legal approval procedures to promote the early entry into force and implementation of the agreement.

The China Ecuador Free Trade Agreement has achieved a mutually beneficial and win-win result on a high-level basis, fully covering the main trade products of both sides. Once it takes effect, it will significantly increase the volume of bilateral trade. According to the arrangement for tariff reduction in goods trade, China and Ecuador will cancel tariffs on 90% of each tax item, of which about 60% will be cancelled immediately after the agreement takes effect. For example, when China imports products such as bananas, white shrimp, fish, fish oil, fresh and dried flowers, cocoa, and coffee from Ecuador, tariffs will gradually decrease from the current 5% to 20% to zero. At the same time, Ecuador will also implement zero tariffs on China's main export products. After the agreement takes effect, Ecuador will import Chinese made plastic products, chemical fibers, steel products, mechanical appliances, electrical equipment, furniture decoration, cars and components, and other products. The tariffs will be gradually reduced and cancelled from the current 5% to 40% level.

The China Ecuador Free Trade Agreement is conducive to further promoting the diversification of trade products between the two sides. For example, in July 2022, China and Ecuador reached a protocol on the plant quarantine requirements for the export of Ecuadorian Pitaya to China, allowing Ecuadorian yellow and red commercial Pitaya that meet the relevant requirements to enter the Chinese market. In April 2023, the first batch of Ecuadorian Pitaya fruits will be shipped to China, which is an important achievement of bilateral agricultural cooperation and provides new development opportunities for producers, importers and exporters of the two countries. According to the statistics of the Central Bank of Ecuador, in 2022, the export volume of Pitaya from Ecuador will be nearly 100 million dollars, mainly supplied to the North American market, of which the United States is the largest market, accounting for more than 80% of the total export volume. Pitaya in Ecuador is a fruit that can be supplied throughout the year. The existing planting area is more than 7000 hectares, distributed in several provinces. Entering the Chinese market will further promote the development of Ecuador's agricultural industry. With the signing of the Free Trade Agreement and further strengthening cooperation between the customs and quarantine inspection departments of both sides, more agricultural products from Ecuador are expected to enter the Chinese market.

The China Ecuador Free Trade Agreement will further enhance the level of trade facilitation between the two countries, provide a better business environment for both sides' enterprises, promote the sustained, stable, and diversified development of bilateral trade and investment, and enhance the well-being of the people and enterprises of both countries. In terms of trade, free trade agreements help Ecuador import industrial raw materials and acquire technology from China at lower prices, reduce the production costs of Ecuador's industry, improve the competitiveness of its agriculture and manufacturing industries, further promote the diversification of its export products, and promote the development of small and medium-sized enterprises; At the same time, consumers in both countries will have the opportunity to enjoy more diverse and high-quality agricultural and industrial products. In terms of investment, according to the Free Trade Agreement, China and Ecuador have agreed to deepen cooperation in investment promotion and facilitation, mainly including sharing and exchanging investment information, improving transparency in the investment environment, simplifying application approval procedures, and incorporating sustainable development provisions such as environmental measures and corporate social responsibility. With the signing of the Free Trade Agreement, it will promote Chinese enterprises to increase investment in Ecuador and further tap into the investment potential of both sides in various fields such as energy, mining, infrastructure, e-commerce, logistics, etc.

The signing of the China Ecuador Free Trade Agreement is of milestone significance for the development of bilateral relations, especially for Ecuador, which will be beneficial for improving people's livelihoods and increasing employment, and assisting the overall economic recovery. However, since March this year, opposition members of the Ecuadorian parliament have been continuously impeaching President Lasso on suspicion of causing the loss of state-owned assets. On May 17th, President Lasso issued a decree to dissolve the parliament and announced the early holding of general elections. The National Election Commission of Ecuador has announced plans to hold a new round of presidential and parliamentary elections on August 20th this year, which may affect the approval process for the entry into force of its free trade agreement. I hope that through joint efforts of both parties, we can strive for the early implementation and effectiveness of the agreement, better benefit the people of both countries, and achieve mutual benefit and win-win results. (Translated from: International Business Daily)