Andean Group - January 2014 (ISSN 1741-4466)

The government is making a concerted effort to strike a trade deal with the European Union (EU). More than four years after pulling out of talks back in 2009, Ecuador relaunched negotiations with the EU for a trade association agreement on 13 January with five days of talks in Brussels, and aims to conclude a deal in the first half of 2014.

The reason for the sudden haste is that after the trade benefits which Ecuador enjoys under the General System of Preferences (GSP Plus) with the EU expire in December 2014, its exporters would lose ground to Colombian and Peruvian counterparts because of higher tariffs. Peru and Colombia signed a free trade deal with the EU in 2012 as part of the Andean Community (CAN) trade bloc, which was provisionally applied with Peru on 1 March 2013 and with Colombia on 1 August 2013. But Ecuador left these talks, essentially because President Rafael Correa was adamant that he was only interested in an “agreement of trade and cooperation” and not a “free trade treaty”.

The big challenge for the negotiators in the coming months is to define the difference between these two terms, which will require politicians well-versed in semantics. Ecuador’s foreign trade minister, Francisco Rivadeneira, who led the country’s delegation to Brussels, made a fist of it, saying that the deal Ecuador wants would clearly delineate “the asymmetries and particular necessities of the country’s economy”. But, in practice, it is not entirely clear how this can be achieved when, as explained by the higher education, science, technology and innovation minister René Ramírez Gallegos (who attended the talks), “the main text on which we sit to negotiate is the same as Peru and Colombia signed with the EU”.

Still, on 21 January Correa confidently asserted that “practically everything is in place” for a deal to be reached in the first half of the year, as “significant progress” had been made in the first round of talks. Correa, who has publicly maintained that Ecuador would not sign a deal “at any cost”, said there were “no great differences” between the two sides. It could be that Correa is making a virtue of necessity and will accept a deal just as long as there are a few token concessions so that he can maintain that Ecuador got a trade accord on its terms. The bottom line is that Ecuador cannot afford to end 2014 without a deal for fear of ceding ground to Colombia and Peru in EU markets, resulting in a widening of the bilateral trade deficit: Ecuador’s exports to the EU totalled US$2.45bn in 2013; imports from the bloc came to US$2.91bn.

In the first round, negotiators discussed market access for goods and services, and government procurement, as well as certain parts of the text of the agreement. Ramírez told the local pro-government daily El Telégrafo, however, that the big potential stumbling block was intellectual property. He said that Correa had made it clear that investing in knowledge and human talent was the only way Ecuador could enjoy sustainable development in the long-run, rather than relying on oil (a finite resource subject to volatile price changes). Ramírez said that Ecuador planned to invest US$1.1bn in four universities and US$300m more in sending scholars abroad. “A bad bargain (with the EU) would be a strong limiting factor for this investment in scholarships and higher education serves as a structural basis for a change in the pattern of production,” Ramírez said.

Correa has singled out the construction of Ecuador’s first City of Knowledge, Yachay, as “the most important project” of his citizens’ revolution. Yachay, located in the northern province of Imbabura, will include a new university and some 19 research centres, in areas such as life sciences, renewable energy, nanotechnology, and information technology, with the aim of putting Ecuador at the cutting edge of innovation.

• China

While President Correa was celebrating in Guayaquil, Vice-President Jorge Glas was in China seeking to drum up further investment, this time for the delayed US$10bn Pacific refinery. Correa announced on 22 January that it was “just about a done deal” for the Industrial and Commercial Bank of China (ICBC) to fund 70% of the Pacific refinery project, which would have a capacity of 300,000 barrels per day. The China National Petroleum Corp (CNPC) will pick up shares in the project from the Venezuelan state oil company Pdvsa, which was originally supposed to provide the financing. Correa defended the decision to seek Chinese funding in the face of criticism that he is seriously indebting the country to the Asian giant. “China finances the US, but if we go looking for financing from China, we are mortgaging the country…” he said.