Economy

New Era of Trade

Ecuador-US relationship

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Minister Campana with Ambassador C.J. Mahoney

Ecuador revives Trade and Investment Council with the United States in another demonstration of how the presidency of Lenin Moreno contrasts with that of his predecessor.

It is ten years since the Trade and Investment Council (TIC) last convened, but this week, private and public sector representatives from Ecuador, led by the Minister of Productivity, Foreign Trade & Investment, Pablo Campana, flew to Washington.

Meeting with US delegates led by Deputy US Trade Representative Mr. C.J. Mahoney, they discussed trade, investment, and a redevelopment of political and economic ties.

A press release from the Ministry of Trade covering the TIC meeting states that “Ecuador is living a moment of integration to the world. The country has adopted a new policy of trade openness and a change of its structural economic model, in which the Ecuadorian productive sector is of paramount importance. […] The reactivation of the TIC with the US, which had been inactive since 2009, is in fact evidence that Ecuador is being viewed in a different light by its trading partners.”

The meeting of the TIC is no small matter. Former president Rafael Correa’s expansionary fiscal policy left a difficult legacy for his successor. Ecuador now faces mounting public debt and a budget deficit of over 6% that it is struggling to finance, particularly at a time of relatively low oil prices.

In addition, Correa’s political alignment with the Bolivarista movement in South America led to the effective dissolution of many of its most important foreign trade relations.

The TIC, for one, was left dormant from 2009 until now, as the former leader distanced itself from the US.
Correa quarrelled with the IMF and the World Bank, and in 2007 he expelled the World Bank’s mission from the country after accusing the institution of trying to blackmail the country when it suspended a USD100 million loan.

This has made securing funding from these institutions naturally harder.

These are the relationships that President Moreno is now trying to rebuild by enforcing a policy of openness and foreign trade.

Since he first came to power in May 2017, he has been working on restarting the TIC meetings as well as extend ties with other trade partners. After all, the US is still, by far, Ecuador’s biggest trading partner, buying over 30% of its exports.

The numbers already show promising results, with the first nine months of 2018 registering USD9.28 billion in the trade balance between the US and Ecuador, a considerable 15% rise from the same period in 2017. Exports grew by nearly 30%.

Ecuadorian officials have been publicly pushing for the TIC meeting that just took place for over a year, and with good reason.While the exports front is looking healthy, American foreign direct investment in Ecuador has been declining steadily, registering USD779 million in 2017, a 24.8% decrease from 2016, according to the Office of the United States Trade Representative.

When compared to 2015 numbers, last year’s US FDI recorded a 50% decline. A closer relationship between the two nations, both political and commercial, could go a long way to attract capital from US investors.

In December 2017 US president Donald Trump renewed the Generalized System of Preferences, which allows duty-free imports from the US for 122 countries, saving Ecuador around USD400 million per year.

However, the reactivation of the TIC could open the door for the establishment of a broader free trade agreement between the two countries that could be extremely beneficial for the Ecuadorian economy. According to the press release, other issues discussed in the meeting included intellectual property and trade in agricultural and fishery products.

The establishment of an arbitration process for legal conflicts between US companies and Ecuador, like the ones faced by the oil company Chevron and the pharmaceutical company Merck Sharp & Dohme, will likely also be on the table during the TIC meetings.

Beyond the relationship with the US, in the 18 months of President Moreno’s leadership, Ecuador has signed new trade agreements with Colombia, Brazil, Russia, and other nations around the world, in addition to securing a USD400 million loan from the World Bank in June this year, in a clear demonstration of a shifting relationship with Bretton Woods institutions.