Ecuador pushes trade with Chile, Mexico, Peru, and Israel

RIO DE JANEIRO, BRAZIL – A few months ago, the Ecuadorian government announced its intention to sign more than ten trade agreements in the medium term to strengthen its trade policy and improve its trade balance which, although it has positive numbers (US$933 million in Jan-Mar 2022), is highly dependent on oil. Ecuador has made significant progress with Chile, Mexico, Peru, and Israel in the search for this diversification.

With the four countries mentioned, Ecuador has maintained a non-oil trade balance deficit, i.e., it has imported more than it has exported, so the developments achieved with these destinations in recent weeks, which are detailed below, are relevant for the country.

CHILE

Last Monday, the Trade Integration Agreement between Ecuador and Chile (ACE75) came into force after two years of negotiations. It was signed in August 2020, and 90% of binational trade is liberalized with its operation.

The agreement has 24 chapters and was designed to modernize and deepen the existing bilateral relationship; it incorporates additional standards in trade facilitation, regulatory aspects, services, and electronic commerce.

It also incorporated new issues with an inclusive approach, such as gender, micro, small and medium-sized enterprises, environment, labor issues, regional and global value chains, and productive linkages.

The chapters also include the creation of bilateral commissions responsible for the implementation and follow-up of the provisions of the trade agreement that replaces the Chile-Ecuador Economic Complementation Agreement ACE 65.

The non-oil trade balance between both countries was a deficit of US$ -50 million for Ecuador in the first quarter of the year; however, Chile is the seventh-largest destination of Ecuadorian exports worldwide and the third largest at a regional level, after Colombia and Peru. It is also the ninth country from which Ecuador imports products.

The main products that the country exported to Chile in the first quarter of the year were:

• Bananas: US$22 million
• Canned fish: US$15 million
• Shrimp: US$9 million
• Leather, plastic, and rubber products: US$7 million.

Also listed are fruit juices and preserves, pineapples, bananas, cocoa products, banana products, natural flowers, metal products, vehicles and their parts, vegetable extracts, and oils.

Ecuador’s main imports from Chile are fertilizers, food preparations, medicines, apples, pears and quinces, wire, cables, polymers, paper, cardboard, other metal products, industrial machinery, fishmeal, crustaceans, and iron or steel products.

MEXICO

Ecuador announced that on May 23, it would begin the last round of FTA negotiations with Mexico in Quito after a conversation between the presidents of both countries. The agreement with Mexico is Ecuador’s pending requirement to formalize its entry into the Pacific Alliance.

In 2021, non-oil trade between the two countries left an unfavorable balance of US$ -522 million for Ecuador, as imports had a greater preponderance than exports. In the case of exports, they reached US$161 million, which meant an increase of 80% compared to 2020.

Last year, Mexico became the fifteenth destination market for Ecuadorian non-oil exports. Currently, that market hosts about 326 exported products.

Figures for the first quarter of 2022 show that the trend continues, with a non-oil balance deficit for Ecuador of US$ -127 million.

The main export products to Mexico in the first quarter of the year were:

• Vegetable extracts and oils: US$21 million
• Cocoa: US$14 million
• Fish canning: US$5 million
• Other foodstuffs: US$1 million

There are also leather, plastic, rubber products, other mining products, fruit juices and preserves, industrialized coffee, straw hats, metal products, textile fiber products, industrial machinery, chemicals, and pharmaceuticals. In addition, 223 companies are linked to exports to that country.

The main imports are medicines (US$17 million), household appliances (US$14 million), metal products (US$13 million), and polymers (US$12 million).

Although there is an agreement in force between the two countries, it dates from October 1987, so it is essential to update it.

PERU

Ecuador and Peru have improved their commercial exchange, declining during the pandemic. It was reported last Tuesday by the Secretary-General of the Andean Community (CAN), Jorge Hernando Pedraza, during the VIII Peru-Ecuador Integration Forum. “After two years of the pandemic, trade between Ecuador and Peru has recovered,” said Pedraza.

Thus, figures reveal that Peruvian exports to Ecuador totaled US$927 million in 2021, a value much higher than that shown in 2020 when they reached US$642 million; likewise, Ecuador showed a recovery in its foreign trade to Peru, totaling US$618 million in 2021, as opposed to the US$419 million recorded in 2020.

Pedraza highlighted that the accumulated investment of Peruvian companies in Ecuador between 2010 and 2020 amounted to US$249 million and that to date, there are a total of 1,719 Peruvian companies settled in Ecuadorian territory, while Ecuadorian companies based in Peru total more than 100 registered in the financial, construction, services, commercial sectors, among others. Ecuadorian companies have so far invested more than US$161 million in Peru.

ISRAEL

Last week, President Guillermo Lasso concluded a visit to Israel, where the governments signed a memorandum of understanding to initiate a trade agreement between the two countries.

Israel’s economy is one of the most prosperous in the world, being four times larger than Ecuador’s, with a GDP per capita by 2020 of US$43,600 compared to US$5,600 GDP per capita for Ecuador, according to World Bank figures.

The trade relationship of both countries is based on the export of primary products by Ecuador, such as fruits and cereals, which came to represent US$5.7 million and US$3.2 million, respectively, between 2020 and 2022, according to data from the Central Bank of Ecuador. However, as Israel is a small country, these exports only account for 0.032% of Ecuador’s total sales to the world.

Likewise, the country’s imports from Israel are mainly processed products and machinery related to agriculture. The most important products are aerographic devices, insecticides, and mineral or chemical fertilizers. Total imports, likewise, account for a percentage of 0.045%.

In 2021, Israel became the 61st destination for the country’s non-oil exports. Currently, this market hosts around 40 exported products.

According to Fedexpor, the opportunities to deepen trade relations with Israel are manifested in the potential growth of certain products in the food chain that manage to differentiate their offer, for one that targets consumers seeking to preserve their cultural values and obtain products that provide them with the greatest nutritional benefit.

This offer will have a better willingness to pay on the part of consumers. In addition, the country would benefit from greater access to inputs and capital goods of the highest technology to technify production processes, incorporating an improvement in the competitiveness of Ecuadorian goods that are marketed both domestically and internationally.

“The materialization of a trade agreement would allow the country’s exportable supply to compete on equal terms with competing countries such as Colombia and Mercosur, which already have tariff benefits for their products for two years and for more than a decade, respectively,” says Fedexpor.

With information from Bloomberg Línea