The Government of Guillermo Lasso considered reaching at least nine trade agreements in four years of management, including one with South Korea.
After almost two years, the Government has closed negotiations for three agreements: Costa Rica, China and South Korea, which will only enter into force at the end of 2023 and 2024.
In an interview with PRIMICIAS, the Minister of Production, Julio José Prado, acknowledges that citizens will have to wait several years before having access to a greater variety of cheaper products.
“The fruits (of the trade agreements, ndr) will be reaped by the following governments,” explains Prado.
Other agreements have fallen by the wayside due to political obstacles, such as those with Russia, Israel, Mexico and the Pacific Alliance.
The negotiation of the trade agreement with South Korea has just been closed. What are the benefits for Ecuador?
100% of Ecuadorian exports destined for South Korea will have a tariff benefit, on most traditional products the import tax will drop to 0%.
But until the internal ratification process is finalized, after the negotiating tables close, it is not yet possible to say how long it will take for the tariffs for Ecuadorian products in South Korea to be reduced.
Among the most benefited products are shrimp, roses, broccoli, bananas, pineapple and mango.
These products will have a 0% tariff. In most cases, the relief will be immediate and, in other cases, in periods of five and 10 years.
For some potential future exports, there may be periods of more than 10 years.
What other new products have the potential to gain market share in Korea?
Among the new Ecuadorian products that have the opportunity to gain market are avocado, papaya, guayusa, chifles, candies, chochos and juices. The tariff on most of these products will drop to 0%.
The only sensitive product for South Korea and other Asian countries is quinoa, because it can become a substitute for rice. Therefore, although quinoa will have a tax reduction, the tariff will not reach 0%.
How much do you expect exports to South Korea to grow after the trade agreement?
It is very preliminary, but we expect a 27% growth in exports, since the agreement enters into force, in the first year.
Appliances, cars and televisions were sensitive sectors for Ecuador, how was the agreement in those areas?
Imports from South Korea do not compete to a large extent with what we produce, we are complementary.
The relief on imports will also be immediate in some cases, and in other specific cases there will be a transition of up to 10 years.
There is competition only in certain white line products, such as stoves, refrigerators and some televisions. But, in general, the white line that they manufacture is very high-end, it does not compete with products from Ecuador.
However, as certain products are sensitive, some items of Korean white goods, metal-mechanics and textiles were excluded to which we will not apply a tariff reduction.
The exclusions are for some 550 products, equivalent to 6% of Ecuador’s tariff headings.
Televisions and cars were not excluded, so imports of these goods from South Korea will have tariff reductions up to 0%.
In the case of cars, there are two options, we can have a reduction due to fees or a gradual reduction.
When will the agreement go into effect?
The signing of the agreement will be in Seoul, in July 2023. Then it has to go through the review of the Constitutional Court and the National Assembly. We expect it to enter into force in the first months of 2024.
President Lasso promised more Ecuador in the world and vice versa. After two years of government, do you consider that the goal is being achieved?
Yes, we are more open to the world. Today, 40% of our exportable products have tariff preferences or are covered by a Free Trade Agreement. Our goal is to reach 80% by the end of the government, with trade agreements.
We arrived with an agenda of 10 trade agreements in our sights and in that group were Costa Rica, China and Korea, with whom we have already closed negotiations at technical tables.
With these agreements, 60% of Ecuador’s export products will have tariff benefits.
While agreements with Russia, Israel and the Pacific Alliance are off the table for now. In the case of Mexico, the agreement is on ‘stand by’ due to a political decision by the government of that country.
But people still do not perceive that this translates into cheaper products and more variety.
There is still a lot to do if we compare ourselves with other countries. Colombia has close to 82% commercial opening, Chile has 97% and Peru has 92%.
If Ecuador had started trade negotiations earlier and with the force with which we are doing it, today the consumer would already be seeing lower prices and a greater variety of products.
Later, others will reap the fruits of the efforts that this Government is making. The same happened with the agreement with the European Union, from which the largest tariff reductions are just being felt.
Regardless of the times, we promote trade agreements because this changes the perspective of the consumer and the industries, it is a change in the development model of Ecuador in the long term.
What else will be done so that citizens do not have to wait so long for prices to drop?
We already carried out the most important tariff reform in the last 10 years, 15 months ago, reducing tariffs for 667 tariff subheadings, which represented a fiscal cost of USD 180 million.
In addition, we are reducing the Exit Currency Tax (ISD).
But on the subject of trade agreements, it is a change that is going to be seen in the next 10 years. What we have achieved is relevant.
Never before has Ecuador had such an intensive and fast trade agenda. We conducted four simultaneous trade negotiations for agreements: Mexico, Costa Rica, China, and South Korea.
Three of them closed in less than 12 months. With China we did it in eight months, no other country has done it.
What happened to a new tariff reduction that had been promised for USD 80 million?
We were analyzing a second tariff reduction, but a good part of the tariffs that could be lowered are part of the trade negotiations that we have on the agenda.
That is why we decided not to make this reduction, to have something to negotiate and for tariffs to be lowered definitively through trade agreements.
Unilateral tariff reductions are good, but they can be reversed by the next government.
On the other hand, with a trade agreement we shield the changes, they cannot be reversed in each government.