EU, Ecuador Finalise Trade Pact

24 July 2014

EU and Ecuadorian negotiators have agreed upon terms that will allow Quito to join an existing trade agreement that Brussels has with Colombia and Peru, officials confirmed last week, bringing to a close a prolonged – and sometimes acrimonious – process dating back several years.

The trade pact will provide Ecuador with improved access to the EU market for its main exports, namely fish, bananas, cut flowers, coffee, cocoa, fruits, and nuts, according to a summary provided by the European Commission. The EU, for its part, is set to receive improved market access for its automotive sector and alcoholic beverages.

“After almost four years of work, finally we have closed a balanced agreement with the European Union, which maximises opportunities, reduces costs to a minimum, respects our country’s development model, and permits the protection of our sensitive sectors,” said Ecuadorian trade minister Francisco Rivadeneira in a statement.

Intellectual property, strategic sectors, and public sector purchases were reportedly among the more difficult issues in the final negotiations. The completed pact, together with its provisions on goods trade, also features “ambitious” provisions on services market access and government procurement.

The European Union is the main market for Ecuador’s non-oil exports, and the third largest market for manufacturing exports. EU trade with Ecuador amounted to €4.9 billion in 2013, according to European Commission data.

The deal must next undergo a legal scrubbing on both sides before being submitted to their respective legislatures for ratification.

Years in the making

Trade talks between the EU and the Andean Community (CAN, by its Spanish acronym), which is comprised of Bolivia, Colombia, Ecuador, and Peru, date back to 2007, with the two sides originally hoping to establish a region-to-region pact.

However, Bolivia dropped out of the negotiations shortly thereafter, concerned that the proposed trade deal would violate Andean regulations on intellectual property, among other reasons. A year later, Ecuador followed suit, though EU officials made clear at the time that the possibility for either country to re-join the talks would be left open. (See Bridges Weekly, 3 March 2010 and 5 August 2009)

The EU’s talks with the remaining Andean Community members switched to bilateral discussions. After nine rounds of negotiations, the EU then signed a free trade agreement with Colombia and Peru in April 2011, with EU trade ministers formally approving the deal the following year. (See Bridges Weekly, 20 April 2011 and  6 June 2012, respectively

The agreements with both Colombia and Peru have been provisionally in force as of mid-2013.

In 2010, Ecuador indicated an interest in re-launching the talks following the resolution of a long-running dispute over the now 28-nation bloc’s high tariffs on Latin American banana exports. (See Bridges Weekly, 17 February 2010

However, the process to restart the bilateral discussions was not so simple, with Ecuadorian President Rafael Correa insisting that the deal his country wanted could not mirror the ones that the EU had reached with Peru and Colombia. Rather than a free trade pact, the Ecuadorian leader said, the two sides needed to clinch an agreement of “mutual benefit” for both sides.

Negotiations finally restarted earlier this year, with the first round of the new discussions being held in January. 

Bringing Quito on board did require some limited changes to the existing agreement text that Brussels has with Lima and Bogotá, the European Commission noted, without going into further detail. However, it said, these revisions will not make any significant difference to the scope of the deal already in place.

GSP+ deadline looming

Ecuador, like other countries in the Andean Community, had benefited from preferential access to the European market under the EU Generalised System of Preferences (GSP), specifically under a special incentive arrangement geared toward promoting good governance and sustainable development known as GSP+.

However, Quito was set to lose those preferences after 31 December 2014, having been classified as “upper middle income” for the past three years by the World Bank, which under EU rules means that it is no longer eligible for such trade benefits.

The potential loss of preferential access for several key products, observers say, likely spurred the negotiations to their final conclusion, given the heavy hit many Ecuadorian exporters would have suffered from such a shift.

Reaching this agreement with Brussels will thus give Ecuadorian exporters “legal certainty,” namely by removing “the fluctuations of tariff preference programmes,” the country’s trade ministry said, in comments reported by Europe Online Magazine. 

Meanwhile, the prospect of potentially renewing GSP+ for Quito – at least until the new trade deal enters into force – is reportedly under discussion among negotiators. Officials say that the earliest the EU-Ecuador agreement will take effect could be 2016, while GSP+ benefits will no longer apply as of 1 January 2015.

The EU pact has been welcomed in the Andean country, with Daniel Legarda, executive vice president of the Ecuadorian Federation of Exporters, calling the move “excellent news for the country, for exporters, and for the economy.”

The federation estimates that 85 percent of exports – not including bananas – benefited from GSP+ access to the European market last year, and had thus urged negotiators to act quickly to finalise the EU-Ecuador deal.

ICTSD reporting; “Ecuador to Join Peru, Colombia in Trade Deal with EU,” EUROPE ONLINE MAGAZINE, 17 July 2014; “Ecuador Seals EU Trade Deal,” THE WALL STREET JOURNAL, 18 July 2014; “UE-Ecuador sellan el acuerdo comercial,” DEUTSCHE WELLE ESPAÑOL, 17 July 2014; “Preferencias arancelarias, en manos de entes europeos,” EL UNIVERSAL, 19 July 2014.

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